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Stockholders’ Equity (Deficit)
 12 Months Ended
Dec. 31, 2024
Stockholders’ Equity (Deficit) [Abstract]  
Stockholders’ Equity (Deficit)

Note 14 - Stockholders’ Equity (Deficit)

 

The total number of shares of capital stock that the Company has the authority to issue is up to 205,000,000 shares, consisting of: (i) 200,000,000 shares of common stock, having a par value of $0.001 per share; and (ii) 5,000,000 shares of preferred stock, having a par value of $0.001 per share. As of December 31, 2024, there were 45,864,503 shares of common stock and 0 shares of preferred stock issued and outstanding. As of December 31, 2023, there were 44,122,091 shares of common stock and 0 shares of preferred stock issued and outstanding as of December 31, 2023.

 

Stock Based Compensation

 

We issued an aggregate of 219,039 shares of common stock during and as of the year ended December 31, 2024, pursuant to reAlpha Tech Corp.’s 2022 Equity Incentive Plan (as amended, the “2022 Plan”) described below.

 

Equity Incentive Plan

 

We maintain the 2022 Plan, under which we may grant awards to our employees, officers and directors and certain other service providers. The compensation committee of our board of directors administers the 2022 Plan. The 2022 Plan permits grants of awards to eligible employees, consultants and other service providers. The aggregate number of shares of common stock that may be issued under the 2022 Plan may not exceed 4,000,000 shares of common stock of which 3,780,961 remain available for issuance. All of our current employees, consultants and other service providers are eligible to be granted awards under the 2022 Plan. Eligibility for awards under the 2022 Plan is determined by the board of directors at its discretion.

  

The 2022 Plan permits the discretionary award of incentive stock options (“ISOs”), non-statutory stock options (“NQSOs”), stock awards (which may have varying vesting schedules and be subject to lock-up periods at the board of directors’ discretion) and other equity awards to selected participants. Unless sooner terminated, no ISO may be granted under the 2022 Plan on or after the 10th anniversary of the Effective Date (as defined in the 2022 Plan).

The compensation committee has the sole discretion in setting the vesting period and, if applicable, exercise schedule of an award, determining that an award may not vest for a specified period after it is granted and accelerating the vesting period of an award. The plan administrator determines the exercise or purchase price of each award, to the extent applicable. The 2022 Plan does not allow for the assignment, transfer or exercise of awards other than by will or the laws of descent and distribution.

 

Unless otherwise provided by the participant’s Option Award Agreement or Stock Award Agreement (as both terms are defined in the 2022 Plan) issued pursuant to the 2022 Plan, upon the participant’s termination for any reason, including but not limited to death, Disability (as defined in the 2022 Plan), voluntary termination nor involuntary termination with or without Cause (as defined in the 2022 Plan), all unvested equity awards in the form of options or shares shall be forfeited. Vested options, unless otherwise provided, will remain exercisable for three (3) months following termination of the participant if such termination is for any reason other than death, Disability or termination for Cause. In case the participant’s separation from service is due to death or Disability, then the vested options will be exercisable for a period of twelve (12) months thereafter. In case the participant’s termination is for Cause, the participant will immediately forfeit any and all options issued to such participant under the 2022 Plan.

 

The 2022 Plan also provides the Company with a right of repurchase all or portion of the shares awarded to the participant under the 2022 Plan, which may be exercised in case a participant separates from service for any reason, at a price equal to the fair market value, as determined by the board of directors. In the event of a Change in Control (as defined in the 2022 Plan), the board of directors will have the sole discretion to address the treatment of a participant’s unvested awards in connection with such Change in Control in the participant’s award agreement.

 

The board of directors may modify, amend or terminate the plan at any time, provided that no such modification, amendment or termination of the 2022 Plan materially affects the rights of a participant under a previously granted award without that participant’s consent. Further, the board of directors cannot, without the approval of the Company’s stockholders, amend this plan: (i) increase the number of common stock with respect to the ISOs that may be granted under the 2022 Plan; (ii) make any changes in the class of employees eligible to receive the ISOs under the plan; (iii) without stockholder approval if required by applicable law.

 

Warrants

 

We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of the warrant’s issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

 

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.

The Warrants issued in connection with the follow-on offering and in connection with the GEM Agreement meet the criteria for equity classification under ASC 480 and ASC 815, therefore, the warrants are classified as equity.

 

On October 23, 2023, we issued GEM Yield Bahamas Limited (“GYBL”) warrants to purchase up to 1,700,884 shares of our common stock (the “GEM Warrants”) at an original exercise price of $406.67 per share, subsequently adjusted to $371.90 following our most recent public offering. On November 1, 2024, we filed a lawsuit against GYBL seeking to void the GEM Warrants or obtain a declaratory judgment that the warrant terms govern exercise price adjustments. On March 14, 2025, the United States District Court for the Southern District of New York dismissed our complaint. We are evaluating the decision and potential appeal options. On March 19, 2025, GYBL filed a separate lawsuit against us in the same court, alleging breach of the GEM Warrants and seeking declaratory relief, monetary damages, specific performance, and attorneys’ fees. We intend to defend the action and pursue all available legal remedies. Due to the pending litigation, the classification of the GEM Warrants under ASC 480 and ASC 815 remains uncertain. If resolved adversely, we may be required to reclassify the warrants as liabilities, which could impact our financial statements. No adjustments have been made as of December 31, 2024, as these events occurred after the balance sheet date. We cannot predict the eventual scope, duration or outcome at this time. At this time, we do not have sufficient information to be able determine whether we will have to pay any damages related to this lawsuit.

 

 

On November 24, 2023, we conducted a follow-on offering by issuing 1,600,000 units priced at $5.00 per unit (the “follow-on offering”), each unit consisting of one share of common stock and one and a half warrants to purchase common stock (the “Follow-On Warrants,” and together with the GEM Warrants, the “Warrants”). The Follow-On Warrants permit holders to exercise them over a five-year period at an exercise price of $5.00 per share, subject to “full ratchet” anti-dilution provisions included therein. The “full ratchet” anti-dilution provisions provide that the Follow-On Warrants’ exercise price can be adjusted downward to a floor price of $1.44 per share as a result of subsequent offerings, and the share amount issuable pursuant to such warrants would increase such that the aggregate exercise price payable thereunder would equal the aggregate exercise price prior to such adjustment.

 

On January 31, 2025, the Company entered into Amendment No. 1 to At the Market Sales Agreement, which amended the At the Market Sales Agreement, dated December 19, 2024, by and between the Company and A.G.P. (the “Original Agreement” and, as amended by the Amendment, the “Sales Agreement”) to reduce the floor price from $5.00 to $3.90 per Placement Share. As a result of this adjustment, the floor price of the Warrants reduced from $5.00 to $3.90 and the number of shares issuable upon exercise of the warrants increased to 3,076,923.

 

Subsequently, on February 27, 2025, in connection with Amendment No. 2 to the At-the-Market Sales Agreement, the floor price used for warrant adjustment purposes was further reduced from $3.90 to $1.44, which is the minimum exercise price permitted under the terms of the warrants. As a result of this further adjustment, the number of shares issuable upon exercise of the warrants increased to 8,333,336.

 

We believe the likelihood that any Warrant holders will exercise their warrants, and the amount of cash proceeds we may receive, depends on the trading price of our common stock. As of the date of this filing, the exercise price of the GEM Warrants remains $371.90, while the exercise price of the Follow-On Warrants has been reduced to $1.44 per share, the floor price permitted under their terms, following the February 27, 2025 amendment to the At-the-Market Sales Agreement. If the trading price of our common stock remains below these respective exercise prices, it is unlikely that the holders will exercise their warrants. While these market conditions currently make exercise of the GEM Warrants unlikely, the reduced exercise price of the Follow-On Warrants may increase the potential for those to be exercised. Additionally, following the March 14, 2025 dismissal of our lawsuit seeking to void the GEM Warrants, and the subsequent legal action filed by GYBL on March 19, 2025 alleging breach and seeking to enforce the GEM Warrants, there is continuing uncertainty regarding the enforceability of the GEM Warrants and the appropriate method for calculating any adjustment to their exercise price. As a result, and pending the outcome of the related litigation, no adjustments have been made to the GEM Warrants’ exercise price based on the one-year anniversary adjustment provision. See “Note 18 – Subsequent Events” for additional information.

 

Our analysis is based on the trading price of our common stock as of March 28, 2024, which was $1.17 per share.

Rights

 

On March 24, 2023, in connection with the acquisition of Rhove, we allocated rights to each seller and participating investors a right to purchase 1,263,000 additional shares of common stock (the “Rollover Stock”) at a fixed price of $10 per share within a two-year period following the closing date of acquisition of Rhove and shall thereafter terminate if not exercised within in such two-year period with no modifications to the exercise terms (the “Rights”). These shares were issued without any restrictions.

 

For details on the factors used in the calculation of the fair value of the Follow-On Warrants and Rights, refer to the audited consolidated financial statements included in the Form 10-KT. As the warrants issued in connection with the follow-on offering and GEM Agreement are classified as equity instruments, they are not subject to fair value remeasurement at the end of each reporting period.

 

Warrants and Rights activity as of December 31, 2024 were as follows:

 

   Issue date  Period ended   Contractual
life
(years)		   Warrants/Options
Outstanding		   Weighted
Average
Exercise
Price		   Average
Remaining
Contractual
Life (Years)		 
Rhove (rollover options) Issued on March 24, 2023  03/04/2023   12/31/2024   2    1,263,000    10.00    0.17 
GEM Warrants Issued on October 23, 2023  10/23/2023   12/31/2024   5    1,700,884    371.9    3.81 
Follow-on Warrants Issued on November 21, 2023(1)  11/21/2023   12/31/2024   5    2,400,000    1.44    3.89 
Warrants outstanding on December 31, 2024               5,363,884    120.93    2.99 

 

(1)In accordance with the anti-dilution provisions of the Follow-On Warrants, the per share exercise price was reduced from $3.90 to $1.44, while the number of shares issuable was increased to approximately 8,333,336, thereby maintaining the aggregate exercise price. This adjustment was reflected in the Company’s filing on February 27, 2025.

  

Shelf Registration Statement on Form S-3

 

The Company filed a Form S-3 (File No. 333-283284) shelf registration statement with the SEC on November 15, 2024, that was declared effective on November 26, 2024 (the “Form S-3”). The Form S-3 allows us to offer common stock, preferred stock, warrants, subscription rights and units from time to time, as market conditions permit to fund, to the extent required beyond the 12 months from the date hereof, the ongoing operations of the Company. Until the growth of revenue increases to a level that covers operating expenses, the Company intends to continue to fund operations in this manner, although, the volatility in the capital markets and potential upcoming recession may negatively affect our ability to do so.

 

As of December 31, 2024, the Company has an At-the-Market (“ATM”) program with A.G.P./Alliance Global Partners (“A.G.P.”), as sales agent, pursuant to an ATM Sales Agreement, dated December 19, 2024 (the “Sales Agreement”), under which it may sell shares of common stock with an aggregate offering price of up to $14,275,000 (see “Note 18 – Recent Developments” for more information on subsequent amendments to the Sales Agreement and related information). During the fiscal year ended December 31, 2024, the Company issued zero shares of its common stock from the ATM program.

 

As of December 31, 2024, the Company is subject to the SEC’s “baby shelf rules,” which prohibits companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period. These rules may limit future issuances of shares by the Company under its Form S-3, the ATM program and related Sales Agreement or other securities offerings.