reAlpha Tech Corp 8-K/A, filed Oct 19, 2026
reAlpha Tech Corp. (AIRE)
About this 8-K/A
reAlpha Tech Corp filed this 8-K/A on October 19, 2026, reporting on events of August 19, 2026.
reAlpha Tech Corp. filed Amendment No. 2 to its 8-K solely to replace Exhibit 99.1 and remove an inadvertent Government Auditing Standards reference from FM Financial's audit report on InstaMortgage Inc., with no change to the opinion or financial statements. AI summary
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 2)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date
of earliest event reported): October 19, 2026 (
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(Commission File Number) | (I.R.S. Employer Identification Number) |
(Address of principal executive offices and zip code)
(
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| The |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth
company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Explanatory Note
Subsequently, on September 23, 2026, the Company filed an amendment to the Original Form 8-K (“Amendment No. 1”) to include (i) the financial statements of InstaMortgage required by Item 9.01(a) of Form 8-K, and (ii) the unaudited pro forma condensed combined financial information required by Item 9.01(b) of Form 8-K, each of which was excluded from the Original Form 8-K in reliance on the instructions to such items, and to file a consent from FM Financial Services LLC (“FM Financial”).
This Amendment No. 2 on Form 8-K/A (“Amendment No. 2”) to the Original Form 8-K is being filed solely to (i) replace Exhibit 99.1 to Amendment No. 1 in its entirety to remove an inadvertent reference to the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, from the “Basis for Opinion” paragraph of FM Financial’s audit report included therein, and (ii) file an updated consent of FM Financial to the incorporation by reference of such audit report into certain of the Company’s registration statements. The correction does not affect FM Financial’s opinion or the financial statements and notes thereto included in Exhibit 99.1, and the date of FM Financial’s audit report has not changed. Except as described above, this Amendment No. 2 does not amend, modify or update any other disclosure contained in the Original Form 8-K or Amendment No. 1.
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Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of businesses or funds acquired.
The audited consolidated financial statements of InstaMortgage for the year ended December 31, 2025, the period of August 1, 2024 to December 31, 2025, and the year ended July 31, 2024, are filed as Exhibit 99.1 to this Amendment No. 2 and are incorporated by reference herein.
(d) Exhibits.
| Exhibit Number |
Description | |
| 23.1 | Consent of FM Financial Services LLC. | |
| 99.1 | Audited consolidated financial statements of InstaMortgage Inc. for the year ended December 31, 2025, the period of August 1, 2024 to December 31, 2025, and the year ended July 31, 2024. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: October 19, 2026 | reAlpha Tech Corp. | |
| By: | /s/ Michael J. Logozzo | |
| Michael J. Logozzo | ||
| Chief Executive Officer | ||
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Exhibit 23.1
CONSENT OF INDEPENDENT AUDITOR
We hereby consent to the inclusion in this Current Report on Form 8-K/A (Amendment No. 2) of reAlpha Tech Corp. of the following reports of this firm relating to the financial statements of InstaMortgage Inc., to the extent such reports are included in Exhibit 99.1 to this Form 8-K/A (Amendment No. 2).
| ● | our report dated October 22, 2024, on the financial statements as of July 31, 2024 and for the year then ended; |
| ● | our report dated March 2, 2026 (as reissued), on the financial statements as of December 31, 2025 and for the year then ended; and |
| ● | our report dated March 2, 2026, on the financial statements as of December 31, 2025 and for the period from August 1, 2024 to December 31, 2025. |
This consent extends to the reports identified above and to no other report or period.
We also consent to the incorporation by reference of said reports relating to the financial statements of InstaMortgage Inc. in the Registration Statements on Form S-8 (No. 333-291057 and No. 333-278102), Form S-1 (No. 333-289704 and No. 333-288571), and Form S-3 (No. 333-287009, No. 333-284234, and No. 333-283284), of reAlpha Tech Corp.
We also consent to the reference to our firm under the heading “Experts” in such filings, if applicable.
/s/ FM Financial Services LLC
Sugar Land, Texas
October 16, 2026
Exhibit 99.1
Independent Auditor’s Report
To the Board of Directors and Stockholder
InstaMortgage, Inc.
San Jose, California
Opinion
We have audited the accompanying financial statements of InstaMortgage, Inc., which comprise the balance sheet as of December 31, 2025, and the related statements of income, stockholder’s equity, and cash flows for the year then ended, and the related notes to the financial statements.
In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of InstaMortgage, Inc. as of December 31, 2025, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of InstaMortgage, Inc., and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibility of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the InstaMortgage, Inc.’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the InstaMortgage, Inc.’s internal control. Accordingly, n o such opinion is expressed.
Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the InstaMortgage, Inc.’s ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matter that we identified during the audit.
/s/ FM Financial Services LLC
FM Financial Services LLC
Sugar Land, Texas
March 2, 2026
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INSTAMORTGAGE, INC
Balance Sheet
As of December 31, 2025
| Assets | ||||
| Current Assets | ||||
| Cash | 516,690 | |||
| Restricted cash | 51,000 | |||
| Prepaid Expenses | 46,405 | |||
| Mark to Market Value | 286,752 | |||
| Loans held for sale, at fair value | 9,944,973 | |||
| Total Current Assets | $ | 10,845,820 | ||
| Non-Current Assets | ||||
| Furniture and Equipment | 53,616 | |||
| Laptop | 17,113 | |||
| Vehicle | 49,514 | |||
| Accumulated Depreciation | (120,243 | ) | ||
| Total Non-Current Assets | $ | - | ||
| Other Assets | ||||
| Security deposits | 19,560 | |||
| Notes Receivable | 405,000 | |||
| Right to Use Asset | 102,047 | |||
| Total Other Assets | $ | 526,607 | ||
| Total Assets | $ | 11,372,427 | ||
| Liabilities and Stockholder’s Equity | ||||
| Current Liabilities | ||||
| Accounts payable and accrued expenses | 207,054 | |||
| Warehouse line of credit, UPB | 9,794,470 | |||
| Operating lease liabilities - current portion | 67,642 | |||
| Total Current Liabilities | $ | 10,069,166 | ||
| Long-Term Liabilities | ||||
| Operating lease liabilities – non-current Portion | 34,405 | |||
| Total Long-Term Liabilities | $ | 34,405 | ||
| Stockholder’s Equity | ||||
| Common stock ($.01 par, 100,000 shares authorized, issued and outstanding) | 1,000 | |||
| Additional paid-in capital | 2,750,378 | |||
| Retained earnings | (1,482,522 | ) | ||
| Total Stockholder’s Equity | $ | 1,268,856 | ||
| Total Liabilities and Stockholder’s Equity | $ | 11,372,427 | ||
The accompanying notes are an integral part of these financial statements.
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INSTAMORTGAGE, INC
Statement of Income
For the Year Ended December 31, 2025
| Revenues | ||||
| Loan origination income | $ | 7,262,815 | ||
| Total Revenues | $ | 7,262,815 | ||
| Cost of Revenues | $ | 1,989,218 | ||
| Gross Profit | $ | 5,273,597 | ||
| Operational Expenses | ||||
| Legal and Professional Charges | $ | 115,197 | ||
| Bank Charges and Fees | $ | 3,327 | ||
| Donations | $ | 500 | ||
| Occupancy expense | $ | 162,346 | ||
| Interest expense | $ | 19,635 | ||
| Marketing Expenses | $ | 65,847 | ||
| Office Expenses | $ | 1,356 | ||
| Branch Expenses | $ | 745,450 | ||
| Other General and Administrative Expenses | $ | 29,872 | ||
| Software, memberships and subscriptions | $ | 235,352 | ||
| Meals and Entertainment | $ | 4,144 | ||
| Membership fee | $ | 2,564 | ||
| Other business Expenses | $ | 16,288 | ||
| Postage and delivery | $ | 1,367 | ||
| Payroll Expenses | $ | 3,620,289 | ||
| Utilities Expenses | $ | 7,628 | ||
| Texas and Licenses | $ | 183,748 | ||
| Travel Expenses | $ | 9,138 | ||
| Total Expenses | $ | 5,224,048 | ||
| Income (Loss) before taxes | $ | 49,549 | ||
| Other Income | $ | 41,921 | ||
| Net Income | $ | 91,470 | ||
| Equity Beginning of the year | $ | 908,634 | ||
| Change in Equity, Fair Value adjustment | $ | 268,752 | ||
| Equity at end of the year | $ | 1,268,856 | ||
The accompanying notes are an integral part of these financial statements.
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INSTAMORTGAGE, INC
Statement of Cash Flows
For the Year Ended December 31, 2025
| Cash Flows from Operating Activities | ||||
| Net income (loss) | $ | 91,470 | ||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||
| Depreciation Expense | $ | 9,793 | ||
| Accounts payable | $ | 9,141 | ||
| Mark to Market Value Revenue | $ | (286,752 | ) | |
| Loans held for sale | $ | (8,228,889 | ) | |
| Security Deposit | $ | 1,910 | ||
| Other prepaid Expenses | $ | 57,774 | ||
| Total adjustments to reconcile net income (loss) to net cash provided by operating activities: | $ | (8,437,023 | ) | |
| Cash flow from operating activities | $ | (8,345,553 | ) | |
| Cash Flows from Financing Activities | ||||
| Repayment of warehouse lines-of-credit | $ | 8,200,566 | ||
| Notes Receivable | $ | (405,000 | ) | |
| Changes in additional paid in capital | $ | 912,051 | ||
| Net Cash from Financing Activities | $ | 8,707,617 | ||
| Net Increase (Decrease) in Cash and Restricted Cash | $ | 362,065 | ||
| Cash and Restricted Cash, Beginning of Year | $ | 205,625 | ||
| Cash and Restricted Cash, End of Year | $ | 567,690 | ||
The accompanying notes are an integral part of these financial statements.
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INSTAMORTGAGE, INC.
AUDITED FINANCIAL STATEMENTS
January 1, 2025 to December 31, 2025
INSTAMORTGAGE, INC.
NOTES TO THE FINANCIAL STATEMENTS
Purpose and Organization
InstaMortgage, Inc. derives income primarily from fees charged for services related to the origination and processing of mortgage loans for financial institutions. The Company was incorporated on April 18, 2008, under the laws of the State of California. Initially The Company has adopted a July 31 year-end for financial reporting and income tax purposes, however, during 2025, it has changed it’s year end to December 31, 2025. The Company had elected and been approved to be taxed as a Subchapter S Corporation effective January 1, 2009. As of January 1, 2020, the Company changed its elected status to a C Corporation. The Company changed its name from Arcus Lending, Inc. to InstaMortgage, Inc. and filed the name change with the Secretary of State of California on February 18, 2022.
Change in Accounting Principle
Effective December 31, 2018, management adopted ASU 2016-18, Statement of Cash Flows (Topic 230), related to restricted cash. This change did not affect net income or retained earnings. The presentation of restricted cash in the balance sheet and statement of cash flows was updated to include a combined description of cash and restricted cash balances.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. The reconciliation of cash and restricted cash reported within the balance sheet is as follows:
| Account Type | Amount | |||
| Unrestricted cash-in-demand deposit accounts | 516,690 | |||
| Restricted cash-in-demand deposit accounts | 51,000 | |||
| Total | $ | 567,690 | ||
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INSTAMORTGAGE, INC.
AUDITED FINANCIAL STATEMENTS
January 1, 2025 to December 31, 2025
Mark to Market Value Revenue
Loan points and revenues related to loan origination are recorded as revenue when the related loans are sold to investors and yet to be funded. Management reviews outstanding receivables periodically, and as of December 31, 2025, no allowance for doubtful accounts has been recorded as all accounts are deemed collectible.
As of December 31, 2025 total Mark to Market Value Revenue was 286,752.
Revenue Recognition
Gains or losses resulting from sales of mortgage loans are recognized at the date of settlement and are based on the difference between the sales price and the asset retained by the Company, if any, and the carrying value of the related loans sold less related transaction costs. Since the Company sells its loan on a servicing-released basis, gains are increased by the amount of any servicing-released premiums received.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Material estimates for which a change is reasonably possible in the near term relate to the determination of the fair value of loans held for sale. The significant assumptions used by the Company to estimate the liability for losses on loans sold include consideration of the Company’s experienced losses on loans repurchased, the likelihood of an error or omission that results in a breach of standard representation and warranties included in the loan sale agreements and the anticipated expense, if any, that may be incurred by the Company in resolving any repurchased loans. Actual results could materially differ from management’s estimates.
Note B - Loans Held for Sale
Mortgage loans held for sale are stated at fair value as determined by outstanding commitments from investors or quoted market prices for securities backed by similar types of loans when quotes are available. Interest on mortgage loans held for sale is credited to income as earned. Interest is accrued only if deemed collectible. During the year ended December 31, 2025, the Company sold loans to twenty-one different investors. The Company monitors its relationships with its investors and, from time to time, makes adjustments in the amount it sells to any one investor based upon a number of factors, including but not limited to, price, loan review time and funding turnaround, underwriting guidelines and the overall efficiency of its relationship with the investors.
On December 31, 2025, loans held for sale consisted of mortgage loans recorded at fair value in the amount of $ 9,944,973. Loans are typically sold to investors on a servicing-released basis.
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INSTAMORTGAGE, INC.
AUDITED FINANCIAL STATEMENTS
January 1, 2025 to December 31, 2025
Note C - Property and Equipment
Property and equipment are stated at cost and depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over the lesser of the life of the lease or the estimated useful life of the improvements.
| Non-Current Assets | Amount | |||
| Furniture and Equipment | 53,616 | |||
| Laptop | 17,113 | |||
| Vehicles | 49,514 | |||
| Total | 120,242 | |||
| Less Accumulated depreciation | (120,242 | ) | ||
| Net book value | $ | - | ||
Note D - Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Note E-Advertising
Advertising costs are expensed as incurred. Advertising expenses amounted to $65,847 for the year ended December 31, 2025, and are included in operating expenses in the statement of income.
Note F - Concentration of Risk
The Company originates mortgage loans on property located in twenty-three states throughout the United States. Originations in California, New York, and Georgia made up approximately 70% of all originations for the year ended December 31, 2025. Due to the nature of the mortgage industry, interest rate increases, and a depressed housing market may severely impact revenue from services related to originating and processing mortgages, which are the primary source of income for the Company.
The Company has concentrated its credit risk for cash by maintaining deposits in several financial institutions, which may at times exceed amounts covered by insurance provided by the Federal Deposit Insurance Corporation (FDIC). The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk to cash.
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INSTAMORTGAGE, INC.
AUDITED FINANCIAL STATEMENTS
January 1, 2025 to December 31, 2025
Note G-Fair Value
The Company measures its financial assets based on a hierarchy that prioritizes the use of observable inputs in the valuation techniques used to measure fair value.
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability.
Level 3: Unobservable inputs.
The fair value of mortgage loans held for sale as of December 31, 2025, was $9,944,973 which is classified as a Level 2 input.
Note H - Warehouse Line of Credit
The Company funds loans through multiple warehouse lines of credit. These lines are used to finance the origination of loans for which a takeout commitment from an approved investor exists. As of December 31, 2025, $9,794,470 was advanced on the warehouse line of credit. The total available credit was $21,000,000.
Note I - Income Tax
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently payable plus deferred taxes arising from temporary differences in the bases of assets and liabilities for financial reporting and income tax purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. The components of the deferred tax asset and liability are classified as current and noncurrent based on their characteristics. Valuation allowances are recorded to reduce deferred tax assets to the amounts management concludes are more likely than not to be realized.
Income tax benefits are recognized and measured based upon a two-step model: 1) a tax position must be more likely than not to be sustained based solely on its technical merits to be recognized, and 2) the benefit is measured as the largest dollar amount of that position that is more-likely-than-not to be sustained upon settlement. The difference between the benefit recognized and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit (UTB).
The Company’s income tax returns are subject to examination by the federal taxing authorities for three years and by the California
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INSTAMORTGAGE, INC.
AUDITED FINANCIAL STATEMENTS
January 1, 2025 to December 31, 2025
Note J - Leasing Arrangements
The Company leases its operating facility under a non-cancelable operating lease with various expiry dates. While all of the agreements provide for minimum lease payments, some include payments adjusted for inflation or variable payments based on a certain criterion. Variable payments are not determinable at the lease commencement and are not included in the measurement of the lease assets and liabilities. The lease agreements do not include any material residual value guarantees or restrictive covenants.
| Operating lease - right-of-use assets | $ | 102,047 | ||
| Operating lease liabilities - current portion | $ | 67,642 | ||
| Operating lease liabilities - less the current portion | $ | 34,405 |
There are no components of initial direct costs related to the operating lease that are included in general and administrative expenses in the statement of income for the year ended December 31, 2025
The following is a schedule by year of the future minimum lease payments required under this lease:
| Year Ending December 31 | Amount | |||
| 2026 | $ | 67,642 | ||
| 2027 | $ | 34,405 | ||
| Total | $ | 102,047 | ||
Note K - Capital and Liquidity Requirements
The Company is subject to various capital requirements in connection with seller and warehouse lending agreements that the Company has entered into with secondary market investors and warehouse lenders. Failure to maintain minimum capital requirements could result in the Company’s inability to originate loans for the respective investor or borrow funds from their warehouse lenders and, therefore, could have a direct material effect on the Company’s financial statements.
The Company’s adjusted net worth and minimum capital requirements by investor and warehouse lender are listed below.
| Category | Adjusted Net Worth ($) | Minimum Capital Requirement($) | ||||||
| HUD | 1,268,856 | 1,000,000 | ||||||
| Warehouse Lenders | ||||||||
| Lender 1 | 1,200,000 | 500,000 | ||||||
| Lender 2 | 500,000 | 500,000 | ||||||
| Lender 3 | 500,000 | 500,000 | ||||||
NOTE L - NEW ACCOUNTING GUIDANCE IMPLEMENTATION
As of January 1, 2022, the Company changed its accounting method for leases as a result of implementing the requirements in the Financial Accounting Standard Board’s Accounting Standards Codification (ASC) 842, Leases, using the modified retrospective transition method. There was no cumulative effect adjustment to the Company’s balance sheet as of January 1, 2022. Prior Year information has not been restated and continues to be reported under the accounting standards in effect for the prior period.
The new lease guidance requires the recognition of a right-of-use asset and a lease liability for operating leases. The Company elected the package of practical expedients, which allowed, among other things, for not reassessing the lease classification or initial direct costs for existing leases. The Company has not elected the hindsight practical expedient.
As of December 31, 2025, approximately $102,047 in operating lease right-of-use assets and corresponding lease liabilities were recognized. Adoption of the new guidance did not have a significant impact on the statement of income or cash flows for the year ended December 31, 2025.
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INSTAMORTGAGE, INC.
AUDITED FINANCIAL STATEMENTS
January 1, 2025 to December 31, 2025
Note M - Subsequent Events
Management evaluated subsequent events through March 2, 2026, the date the financial statements were available to be issued. There were no events requiring adjustment or disclosure.
NOTE N - MERGER AGREEMENT AND SUBSEQUENT CHANGE IN OWNERSHIP
On December 19, 2025, InstaMortgage Inc. (the “Company”) entered into a definitive Agreement and Plan of Merger with reAlpha Tech Corp. (“reAlpha”), reAlpha Merger Sub I, Inc., a wholly owned subsidiary of reAlpha, and the Company’s existing stockholders. Under the agreement, reAlpha agreed to acquire all outstanding shares of the Company through a merger in which the Company would continue as the surviving corporation and become a wholly owned subsidiary of reAlpha.
The original agreement provided for aggregate merger consideration of approximately $8.5 million, subject to certain closing adjustments. The consideration consisted of $500,000 in cash, $1.5 million in reAlpha common stock, and $6.5 million payable in six equal semiannual installments over three years following the closing date. The deferred installments could be settled in cash or reAlpha common stock, at reAlpha’s discretion, provided that at least $1.5 million of those installments would be paid in cash. The cash consideration was subject to adjustments for the Company’s cash and cash equivalents, indebtedness and unpaid selling expenses, as specified in the agreement.
As of December 31, 2025, the merger had not been consummated and remained subject to customary closing conditions, including applicable regulatory approvals. Accordingly, no merger consideration or gain from the contemplated transaction was recognized in the Company’s financial statements for the year ended December 31, 2025.
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Independent Auditor’s Report
To the Board of Directors and Stockholder
InstaMortgage, Inc.
San Jose, California
Opinion
We have audited the accompanying financial statements of InstaMortgage, Inc., which comprise the balance sheet as of December 31, 2025, and the related statements of income, stockholder’s equity, and cash flows for the period from August 1, 2024 to December 31, 2025 then ended, and the related notes to the financial statements.
In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of InstaMortgage, Inc. as of De c e m b e r 31, 2025, and the results of its operations and its cash flows for the period then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of InstaMortgage, Inc., and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibility of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the InstaMortgage, Inc.’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS we:
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the InstaMortgage, Inc.’s internal control. Accordingly, n o such opinion is expressed.
Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the InstaMortgage, Inc.’s ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matter that we identified during the audit.
/s/ FM Financial Services LLC
FM Financial Services,
Sugar Land, Texas
Date: March 2, 2026
2
INSTAMORTGAGE, INC
Balance Sheet
As of December 31, 2025
| Assets | ||||
| Current Assets | ||||
| Cash | 516,690 | |||
| Restricted cash | 51,000 | |||
| Prepaid Expenses | 46,405 | |||
| Mark to Market Value | 286,752 | |||
| Loans held for sale, at fair value | 9,944,973 | |||
| Total Current Assets | $ | 10,845,820 | ||
| Non-Current Assets | ||||
| Furniture and Equipment | 53,616 | |||
| Laptop | 17,113 | |||
| Vehicle | 49,514 | |||
| Accumulated Depreciation | (120,243 | ) | ||
| Total Non-Current Assets | $ | - | ||
| Other Assets | ||||
| Security deposits | 19,560 | |||
| Notes Receivable | 405,000 | |||
| Right to Use Asset | 102,047 | |||
| Total Other Assets | $ | 526,607 | ||
| Total Assets | $ | 11,372,427 | ||
| Liabilities and Stockholder’s Equity | ||||
| Current Liabilities | ||||
| Accounts payable and accrued expenses | 207,054 | |||
| Warehouse line of credit, UPB | 9,794,470 | |||
| Operating lease liabilities - current portion | 67,642 | |||
| Total Current Liabilities | $ | 10,069,166 | ||
| Long-Term Liabilities | ||||
| Operating lease liabilities – non-current Portion | 34,405 | |||
| Total Long-Term Liabilities | $ | 34,405 | ||
| Stockholder’s Equity | ||||
| Common stock ($.01 par, 100,000 shares authorized, issued and outstanding) | 1,000 | |||
| Additional paid-in capital | 2,750,378 | |||
| Retained earnings | (1,482,522 | ) | ||
| Total Stockholder’s Equity | $ | 1,268,856 | ||
| Total Liabilities and Stockholder’s Equity | $ | 11,372,427 | ||
The accompanying notes are an integral part of these financial statements.
3
INSTAMORTGAGE, INC
Statement of Income
For the Period Ended December 31, 2025
| Revenues | ||||
| Loan origination income | $ | 9,697,852 | ||
| Total Revenues | $ | 9,697,852 | ||
| Cost of Revenues | $ | 2,668,534 | ||
| Gross Profit | $ | 7,029,318 | ||
| Operational Expenses | ||||
| Legal and Professional Charges | $ | 145,153 | ||
| Bank Charges and Fees | $ | 3,764 | ||
| Donations | $ | 1,700 | ||
| Occupancy expense | $ | 220,289 | ||
| Interest expense | $ | 39,760 | ||
| Marketing Expenses | $ | 118,389 | ||
| Office Expenses | $ | 2,227 | ||
| Branch Expenses | $ | 1,038,943 | ||
| Other General and Administrative Expenses | $ | 44,893 | ||
| Software, memberships and subscriptions | $ | 357,736 | ||
| Meals and Entertainment | $ | 4,531 | ||
| Membership fee | $ | 2,888 | ||
| Other business Expenses | $ | 17,243 | ||
| Poatage and delivery | $ | 2,582 | ||
| Payroll Expenses | $ | 4,757,597 | ||
| Depreciation | $ | 9,793 | ||
| Texas and Licenses | $ | 213,993 | ||
| Travel Expenses | $ | 11,203 | ||
| Total Expenses | $ | 6,992,683 | ||
| Income (Loss) before taxes | $ | 36,635 | ||
| Other Income | $ | 58,435 | ||
| Net Income | $ | 95,069 | ||
| Equity Beginning of the Period | $ | 905,035 | ||
| Change in Equity, Fair Value adjustment | $ | 268,752 | ||
| Equity at end of the Period | $ | 1,268,856 | ||
The accompanying notes are an integral part of these financial statements.
4
INSTAMORTGAGE, INC
Statement of Cash Flows
For the Period Ended December 31, 2025
| Cash Flows from Operating Activities | ||||
| Net income (loss) | $ | 95,069 | ||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||
| Depreciation Expense | $ | 9,793 | ||
| Accounts payable | $ | 46,454 | ||
| Mark to Market Value Revenue | $ | (117,573 | ) | |
| Loans held for sale | $ | (3,125,714 | ) | |
| Security Deposit | $ | 1,910 | ||
| Other prepaid Expenses | $ | (46,405 | ) | |
| Total adjustments to reconcile net income (loss) to net cash provided by operating activities: | $ | (3,231,534 | ) | |
| Cash flow from operating activities | $ | (3,136,465 | ) | |
| Cash Flows from Financing Activities | ||||
| Loan from warehouse lines-of-credit | $ | 3,274,087 | ||
| Notes Receivable | $ | (405,000 | ) | |
| Changes in additional paid in capital | $ | (29,859 | ) | |
| Net Cash from Financing Activities | $ | 2,839,228 | ||
| Net Increase (Decrease) in Cash and Restricted Cash | $ | (297,237 | ) | |
| Cash and Restricted Cash, Beginning of Period | $ | 864,927 | ||
| Cash and Restricted Cash, End of Period | $ | 567,690 | ||
The accompanying notes are an integral part of these financial statements.
5
INSTAMORTGAGE, INC.
AUDITED FINANCIAL STATEMENTS
August 1, 2024 to December 31, 2025
INSTAMORTGAGE, INC.
NOTES TO THE FINANCIAL STATEMENTS
Purpose and Organization
InstaMortgage, Inc. derives income primarily from fees charged for services related to the origination and processing of mortgage loans for financial institutions. The Company was incorporated on April 18, 2008, under the laws of the State of California. Initially The Company has adopted a July 31 year-end for financial reporting and income tax purposes, however, during 2025, it has changed it’s year end to December 31, 2025. The Company had elected and been approved to be taxed as a Subchapter S Corporation effective January 1, 2009. As of January 1, 2020, the Company changed its elected status to a C Corporation. The Company changed its name from Arcus Lending, Inc. to InstaMortgage, Inc. and filed the name change with the Secretary of State of California on February 18, 2022.
Change in Accounting Principle
Effective December 31, 2018, management adopted ASU 2016-18, Statement of Cash Flows (Topic 230), related to restricted cash. This change did not affect net income or retained earnings. The presentation of restricted cash in the balance sheet and statement of cash flows was updated to include a combined description of cash and restricted cash balances.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. The reconciliation of cash and restricted cash reported within the balance sheet is as follows:
| Account Type | Amount | |||
| Unrestricted cash-in-demand deposit accounts | 516,690 | |||
| Restricted cash-in-demand deposit accounts | 51,000 | |||
| Total | $ | 567,690 | ||
6
INSTAMORTGAGE, INC.
AUDITED FINANCIAL STATEMENTS
August 1, 2024 to December 31, 2025
Mark to Market Value Revenue
Loan points and revenues related to loan origination are recorded as revenue when the related loans are sold to investors and yet to be funded. Management reviews outstanding receivables periodically, and as of December 31, 2205, no allowance for doubtful accounts has been recorded as all accounts are deemed collectible.
As of December 31, 2025, total Mark to Market Value Revenue was 286,752.
Revenue Recognition
Gains or losses resulting from sales of mortgage loans are recognized at the date of settlement and are based on the difference between the sales price and the asset retained by the Company, if any, and the carrying value of the related loans sold less related transaction costs. Since the Company sells its loan on a servicing-released basis, gains are increased by the amount of any servicing-released premiums received.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Material estimates for which a change is reasonably possible in the near term relate to the determination of the fair value of loans held for sale. The significant assumptions used by the Company to estimate the liability for losses on loans sold include consideration of the Company’s experienced losses on loans repurchased, the likelihood of an error or omission that results in a breach of standard representation and warranties included in the loan sale agreements and the anticipated expense, if any, that may be incurred by the Company in resolving any repurchased loans. Actual results could materially differ from management’s estimates.
Note B -Loans Held for Sale
Mortgage loans held for sale are stated at fair value as determined by outstanding commitments from investors or quoted market prices for securities backed by similar types of loans when quotes are available. Interest on mortgage loans held for sale is credited to income as earned. Interest is accrued only if deemed collectible. During the period ended December 31, 2025 the Company sold loans to twenty-one different investors. The Company monitors its relationships with its investors and, from time to time, makes adjustments in the amount it sells to any one investor based upon a number of factors, including but not limited to, price, loan review time and funding turnaround, underwriting guidelines and the overall efficiency of its relationship with the investors.
On December 31, 2025, loans held for sale consisted of mortgage loans recorded at fair value in the amount of $ 9,944,973. Loans are typically sold to investors on a servicing-released basis.
7
INSTAMORTGAGE, INC.
AUDITED FINANCIAL STATEMENTS
August 1, 2024 to December 31, 2025
Note C - Property and Equipment
Property and equipment are stated at cost and depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over the lesser of the life of the lease or the estimated useful life of the improvements.
| Non-Current Assets | Amount | |||
| Furniture and Equipment | 53,616 | |||
| Laptop | 17,113 | |||
| Vehicles | 49,514 | |||
| Total | 120,242 | |||
| Less Accumulated depreciation | (120,242 | ) | ||
| Net book value | $ | - | ||
Note D - Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Note E-Advertising
Advertising costs are expensed as incurred. Advertising expenses amounted to $65,847 for the period ended December 31, 2025, and are included in operating expenses in the statement of income.
Note F - Concentration of Risk
The Company originates mortgage loans on property located in twenty-three states throughout the United States. Originations in California, Maryland, Virginia and Texas made up approximately 60% of all originations for the period ended December 31, 2025. Due to the nature of the mortgage industry, interest rate increases, and a depressed housing market may severely impact revenue from services related to originating and processing mortgages, which are the primary source of income for the Company.
The Company has concentrated its credit risk for cash by maintaining deposits in several financial institutions, which may at times exceed amounts covered by insurance provided by the Federal Deposit Insurance Corporation (FDIC). The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk to cash.
8
INSTAMORTGAGE, INC.
AUDITED FINANCIAL STATEMENTS
August 1, 2024 to December 31, 2025
Note G-Fair Value
The Company measures its financial assets based on a hierarchy that prioritizes the use of observable inputs in the valuation techniques used to measure fair value.
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability.
Level 3: Unobservable inputs.
The fair value of mortgage loans held for sale as of December 31, 2025, was $9,944,973 which is classified as a Level 2 input.
Note H -Warehouse Line of Credit
The Company funds loans through multiple warehouse lines of credit. These lines are used to finance the origination of loans for which a takeout commitment from an approved investor exists. As of December 31, 2025, $9,794,470 was advanced on the warehouse line of credit. The total available credit was $21,000,000.
Note I- Income Tax
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently payable plus deferred taxes arising from temporary differences in the bases of assets and liabilities for financial reporting and income tax purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. The components of the deferred tax asset and liability are classified as current and noncurrent based on their characteristics. Valuation allowances are recorded to reduce deferred tax assets to the amounts management concludes are more likely than not to be realized.
Income tax benefits are recognized and measured based upon a two-step model: 1) a tax position must be more likely than not to be sustained based solely on its technical merits to be recognized, and 2) the benefit is measured as the largest dollar amount of that position that is more-likely-than-not to be sustained upon settlement. The difference between the benefit recognized and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit (UTB).
The Company’s income tax returns are subject to examination by the federal taxing authorities for three years and by the California
9
INSTAMORTGAGE, INC.
AUDITED FINANCIAL STATEMENTS
August 1, 2024 to December 31, 2025
Note J -Leasing Arrangements
The Company leases its operating facility under a non-cancelable operating lease with various expiry dates. While all of the agreements provide for minimum lease payments, some include payments adjusted for inflation or variable payments based on a certain criterion. Variable payments are not determinable at the lease commencement and are not included in the measurement of the lease assets and liabilities. The lease agreements do not include any material residual value guarantees or restrictive covenants.
| Operating lease - right-of-use assets | $ | 102,047 | ||
| Operating lease liabilities - current portion | $ | 67,642 | ||
| Operating lease liabilities - less the current portion | $ | 34,405 |
There are no components of initial direct costs related to the operating lease that are included in general and administrative expenses in the statement of income for the period ended December 31, 2025
The following is a schedule by period of the future minimum lease payments required under this lease:
| Period Ending December 31 | Amount | |||
| 2026 | $ | 67,642 | ||
| 2027 | $ | 34,405 | ||
| Total | $ | 102,047 | ||
Note K - Capital and Liquidity Requirements
The Company is subject to various capital requirements in connection with seller and warehouse lending agreements that the Company has entered into with secondary market investors and warehouse lenders. Failure to maintain minimum capital requirements could result in the Company’s inability to originate loans for the respective investor or borrow funds from their warehouse lenders and, therefore, could have a direct material effect on the Company’s financial statements.
The Company’s adjusted net worth and minimum capital requirements by investor and warehouse lender are listed below.
| Category | Adjusted Net Worth ($) | Minimum Capital Requirement($) | ||||||
| HUD | 1,268,856 | 1,000,000 | ||||||
| Warehouse Lenders | ||||||||
| Lender 1 | 1,200,000 | 500,000 | ||||||
| Lender 2 | 500,000 | 500,000 | ||||||
| Lender 3 | 500,000 | 500,000 | ||||||
NOTE L - NEW ACCOUNTING GUIDANCE IMPLEMENTATION
As of January 1, 2022, the Company changed its accounting method for leases as a result of implementing the requirements in the Financial Accounting Standard Board’s Accounting Standards Codification (ASC) 842, Leases, using the modified retrospective transition method. There was no cumulative effect adjustment to the Company’s balance sheet as of January 1, 2022. Prior Period information has not been restated and continues to be reported under the accounting standards in effect for the prior period.
The new lease guidance requires the recognition of a right-of-use asset and a lease liability for operating leases. The Company elected the package of practical expedients, which allowed, among other things, for not reassessing the lease classification or initial direct costs for existing leases. The Company has not elected the hindsight practical expedient.
As of December 31, 2025, approximately $102,047 in operating lease right-of-use assets and corresponding lease liabilities were recognized. Adoption of the new guidance did not have a significant impact on the statement of income or cash flows for the period ended December 31, 2025.
10
INSTAMORTGAGE, INC.
AUDITED FINANCIAL STATEMENTS
August 1, 2024 to December 31, 2025
Note M - Subsequent Events
Management evaluated subsequent events through March 2, 2026, the date the financial statements were available to be issued.
There were no events requiring adjustment or disclosure.
NOTE N — MERGER AGREEMENT AND SUBSEQUENT CHANGE IN OWNERSHIP
On December 19, 2025, InstaMortgage Inc. (the “Company”) entered into a definitive Agreement and Plan of Merger with reAlpha Tech Corp. (“reAlpha”), reAlpha Merger Sub I, Inc., a wholly owned subsidiary of reAlpha, and the Company’s existing stockholders. Under the agreement, reAlpha agreed to acquire all outstanding shares of the Company through a merger in which the Company would continue as the surviving corporation and become a wholly owned subsidiary of reAlpha.
The original agreement provided for aggregate merger consideration of approximately $8.5 million, subject to certain closing adjustments. The consideration consisted of $500,000 in cash, $1.5 million in reAlpha common stock, and $6.5 million payable in six equal semiannual installments over three years following the closing date. The deferred installments could be settled in cash or reAlpha common stock, at reAlpha’s discretion, provided that at least $1.5 million of those installments would be paid in cash. The cash consideration was subject to adjustments for the Company’s cash and cash equivalents, indebtedness and unpaid selling expenses, as specified in the agreement.
As of December 31, 2025, the merger had not been consummated and remained subject to customary closing conditions, including applicable regulatory approvals. Accordingly, no merger consideration or gain from the contemplated transaction was recognized in the Company’s financial statements for the year ended December 31, 2025.
11
InstaMortgage, Inc.
Financial Statements
As of July 31, 2024
With Independent Auditor’s opinion
Auditor(s)
FAIZA MEHMOOD
FM Financial Services LLC
77 Sugar Creek blvd, Suite 600, Sugar Land
Texas, United States, 77478
Email: info@fmfinancialservicesllc.com
Independent Auditor’s Report
To the Board of Directors and Stockholder
InstaMortgage, Inc.
San Jose, California
Opinion
We have audited the accompanying financial statements of InstaMortgage, Inc., which comprise the balance sheet as of July 31, 2024, and the related statements of income, stockholder’s equity, and cash flows for the year then ended, and the related notes to the financial statements.
In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of InstaMortgage, Inc. as of July 31, 2024, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of InstaMortgage, Inc., and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about InstaMortgage, Inc.’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
1
In performing an audit in accordance with GAAS, we:
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of InstaMortgage, Inc.’s internal control. Accordingly, no such opinion is expressed.
Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about InstaMortgage, Inc.’s ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
| /s/ Faiza Mehmood |
FAIZA MEHMOOD
Managing Partner of
FM Financial Services LLC
Sugar Land, Texas
October 22, 2024
2
INSTAMORTGAGE, INC
Balance Sheet
As of July 31, 2024
| Assets | ||||
| Current Assets | ||||
| Cash | $ | 758,232 | ||
| Restricted cash | $ | 100,774 | ||
| Accounts Receivable | $ | 57,376 | ||
| Receivable from Officer | $ | 45,000 | ||
| Loans held for sale, at fair value | $ | 8,421,583 | ||
| Total Current Assets | $ | 9,382,965 | ||
| Non-Current Assets | ||||
| Furniture and Equipment | $ | 62,426 | ||
| Laptop | $ | 17,113 | ||
| Vehicle | $ | 49,514 | ||
| (Accumulated Depreciation) | $ | (109,318 | ) | |
| Total Non-Current Assets | $ | 19,735 | ||
| Other Assets | ||||
| Security deposits | $ | 21,470 | ||
| Right to Use Asset | $ | 217,989 | ||
| Provision for Defer Tax Assets | $ | 331,801 | ||
| Total Other Assets | $ | 571,260 | ||
| Total Assets | $ | 9,973,960 | ||
| Liabilities and Stockholder’s Equity | ||||
| Current Liabilities | ||||
| Accounts payable and accrued expenses | $ | 47,900 | ||
| Warehouse line of credit, UPB | $ | 8,050,316 | ||
| Operating lease liabilities - current portion | $ | 102,049 | ||
| Total Current Liabilities | $ | 8,200,265 | ||
| Long-Term Liabilities | ||||
| Operating lease liabilities - non current Portion | $ | 115,940 | ||
| Total Long-Term Liabilities | $ | 115,940 | ||
| Stockholder’s Equity | ||||
| Common stock, $.01 par value, 100,000 shares authorized, 100,000 shares | ||||
| issued and outstanding | $ | 1,000 | ||
| Additional paid-in capital | $ | 2,814,368 | ||
| Retained earnings | $ | (1,157,612 | ) | |
| Total Stockholder’s Equity | $ | 1,657,756 | ||
| Total Liabilities and Stockholder’s Equity | $ | 9,973,960 | ||
Footnotes are the integral part of the financial statements
3
INSTAMORTGAGE, INC
Statement of Income
For the Year Ended July 31, 2024
| 2024 | ||||
| Revenues | ||||
| Loan origination income | $ | 4,996,089 | ||
| Change in fair value of loans held for sale | $ | 189,788 | ||
| Total Revenues | $ | 5,185,878 | ||
| Cost of Revenues | $ | 1,806,570 | ||
| Gross Profit | $ | 3,379,308 | ||
| Expenses | ||||
| Personnel expense | $ | 3,407,660 | ||
| Occupancy expense | $ | 182,586 | ||
| Operating expense | $ | 1,118,387 | ||
| Interest expense | $ | 32,194 | ||
| Professional fees | $ | 218,485 | ||
| Total Expenses | $ | 4,959,311 | ||
| Income (Loss) before taxes | $ | (1,580,003 | ) | |
| Other Income | $ | 37,116 | ||
| Provision for income taxes | $ | 331,801 | ||
| Net Income | $ | (1,211,086 | ) | |
Footnotes are the integral part of the financial statements
4
INSTAMORTGAGE, INC
Statement of Cash Flows
For the Year Ended July 31, 2024
| Cash Flows From Operating Activities | ||||
| Net income (loss) | $ | (1,211,086 | ) | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||
| Depreciation | $ | 23,157 | ||
| Provision for income Tax | $ | (331,801 | ) | |
| Increase in Accounts Payable | $ | (57,376 | ) | |
| Decrease in Security Deposit | $ | 6,208 | ||
| Right to use assets | $ | (188,302 | ) | |
| Loans held for sale | $ | (3,146,549 | ) | |
| Accounts payable | $ | (218,204 | ) | |
| operating lease liabilities | $ | 188,302 | ||
| Net Cash Provided (Used) by Operating Activities | $ | (4,935,652 | ) | |
| Cash Flows from Financing Activities | ||||
| Repayment of warehouse lines-of-credit | $ | 2,977,772 | ||
| Receivable from Founder | $ | (45,000 | ) | |
| Capital contributions | $ | 1,362,172 | ||
| Net Cash from Financing Activities | $ | 4,294,944 | ||
| Net Increase (Decrease) in Cash and Restricted Cash | $ | (640,708 | ) | |
| Cash and Restricted Cash, Beginning of Year | $ | 1,499,712 | ||
| Cash and Restricted Cash, End of Year | $ | 859,004 | ||
Footnotes are the integral part of the financial statements
5
INSTAMORTGAGE, INC
Statement of Stockholder’s Equity
For the year ended July 31, 2024
| Common Stock | Additional Paid-In Capital | Retained Earnings | Total | |||||||||||||
| Balance as of July 31, 2022 | $ | 1,000 | $ | 1,108,789 | $ | 1,403,502 | $ | 2,513,291 | ||||||||
| Net Income | $ | - | $ | - | $ | (1,350,028 | ) | $ | (1,350,028 | ) | ||||||
| Contributions | $ | - | $ | 343,407 | $ | - | $ | 343,407 | ||||||||
| Balance as of July 31, 2023 | $ | 1,000 | $ | 1,452,196 | $ | 53,474 | $ | 1,503,670 | ||||||||
| Net Income | $ | (1,211,086 | ) | $ | (1,211,086 | ) | ||||||||||
| Contributions | $ | 1,362,172 | $ | 1,362,172 | ||||||||||||
| Balance - Juy 31, 2024 | $ | 1,000 | $ | 2,814,368 | $ | (1,157,612 | ) | $ | 1,657,756 | |||||||
Footnotes are the integral part of the financial statements
6
INSTAMORTGAGE, INC.
AUDITED FINANCIAL STATEMENTS
AUGUST 1st, 2023 TO JULY 31, 2024
INSTAMORTGAGE, INC.
NOTES TO THE FINANCIAL STATEMENTS
Purpose and Organization
InstaMortgage, Inc. derives income primarily from fees charged for services related to the origination and processing of mortgage loans for financial institutions. The Company was incorporated on April 18, 2008, under the laws of the State of California. The Company has adopted a July 31 year-end for financial reporting and income tax purposes. The Company had elected and been approved to be taxed as a Subchapter S Corporation effective January 1, 2009. As of January 1, 2020, the Company changed its elected status to a C Corporation. The Company changed its name from Arcus Lending, Inc. to InstaMortgage, Inc. and filed the name change with the Secretary of State of California on February 18, 2022.
Change in Accounting Principle
Effective December 31, 2018, management adopted ASU 2016-18, Statement of Cash Flows (Topic 230), related to restricted cash. This change did not affect net income or retained earnings. The presentation of restricted cash in the balance sheet and statement of cash flows was updated to include a combined description of cash and restricted cash balances.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. The reconciliation of cash and restricted cash reported within the balance sheet is as follows:
| Account Type | Amount | |||
| Unrestricted cash-in-demand deposit accounts | 758,232 | |||
| Restricted cash-in-demand deposit accounts | 100,774 | |||
| Total | 859,006 | |||
| FM Financial Services LLC | 77 Sugar Creek Blvd, Suite 600 Sugar Land, Texas, 77478 | Info@fmfinancialservicesllc.com |
7
INSTAMORTGAGE,
INC.
AUDITED FINANCIAL STATEMENTS
AUGUST 1st, 2023 TO JULY 31, 2024
Accounts Receivable
Loan points and revenues related to loan origination are recorded as revenue when the related loans are sold to investors. Management reviews outstanding receivables periodically, and as of July 31, 2024, no allowance for doubtful accounts has been recorded as all accounts are deemed collectible.
As of July 31, 2024, Total outstanding receivables were $57,376. The receivables were paid in full during August 2024.
Revenue Recognition
Gains or losses resulting from sales of mortgage loans are recognized at the date of settlement and are based on the difference between the sales price and the asset retained by the Company, if any, and the carrying value of the related loans sold less related transaction costs. Since the Company sells its loan on a servicing-released basis, gains are increased by the amount of any servicing-released premiums received.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Material estimates for which a change is reasonably possible in the near term relate to the determination of the fair value of loans held for sale. The significant assumptions used by the Company to estimate the liability for losses on loans sold include consideration of the Company’s experienced losses on loans repurchased, the likelihood of an error or omission that results in a breach of standard representation and warranties included in the loan sale agreements and the anticipated expense, if any, that may be incurred by the Company in resolving any repurchased loans. Actual results could materially differ from management’s estimates.
Note B - Loans Held for Sale
Mortgage loans held for sale are stated at fair value as determined by outstanding commitments from investors or quoted market prices for securities backed by similar types of loans when quotes are available. Interest on mortgage loans held for sale is credited to income as earned. Interest is accrued only if deemed collectible. During the year ended July 31, 2024, the Company sold loans to twenty-one different investors. The Company monitors its relationships with its investors and, from time to time, makes adjustments in the amount it sells to any one investor based upon a number of factors, including but not limited to, price, loan review time and funding turnaround, underwriting guidelines and the overall efficiency of its relationship with the investors.
On July 31, 2024, loans held for sale consisted of mortgage loans recorded at fair value in the amount of $ 8,421,583. Loans are typically sold to investors on a servicing-released basis.
| FM Financial Services LLC | 77 Sugar Creek Blvd, Suite 600 Sugar Land, Texas, 77478 | Info@fmfinancialservicesllc.com |
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INSTAMORTGAGE,
INC.
AUDITED FINANCIAL STATEMENTS
AUGUST 1st, 2023 TO JULY 31, 2024
Note C - Property and Equipment
Property and equipment are stated at cost and depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over the lesser of the life of the lease or the estimated useful life of the improvements.
| Non-Current Assets | Amount | |||
| Furniture and Equipment | 62,426 | |||
| Laptop | 17,113 | |||
| Vehicles | 49,514 | |||
| Total | 129,053 | |||
| Less Accumulated depreciation | (109,318 | ) | ||
| Net book value | 19,735 | |||
The Company charged $23,159 of depreciation expense to operations during the year ended July 31, 2024.
Note D - Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Note E - Advertising
Advertising costs are expensed as incurred. Advertising expenses amounted to $144,476 for the year ended July 31, 2024, and are included in operating expenses in the statement of income.
Note F - Concentration of Risk
The Company originates mortgage loans on property located in twenty-three states throughout the United States. Originations in California, New York, and Georgia made up approximately 70% of all originations for the year ended July 31, 2024. Due to the nature of the mortgage industry, interest rate increases, and a depressed housing market may severely impact revenue from services related to originating and processing mortgages, which are the primary source of income for the Company.
The Company has concentrated its credit risk for cash by maintaining deposits in several financial institutions, which may at times exceed amounts covered by insurance provided by the Federal Deposit Insurance Corporation (FDIC). The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk to cash.
| FM Financial Services LLC | 77 Sugar Creek Blvd, Suite 600 Sugar Land, Texas, 77478 | Info@fmfinancialservicesllc.com |
9
INSTAMORTGAGE,
INC.
AUDITED FINANCIAL STATEMENTS
AUGUST 1st, 2023 TO JULY 31, 2024
Note G - Related Party Transactions
During the year ending July 31, 2024, a short-term loan of $45,000 was issued to the officer of the entity. The loan was repaid in full as of the date of this report.
Note H - Fair Value
The Company measures its financial assets based on a hierarchy that prioritizes the use of observable inputs in the valuation techniques used to measure fair value.
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability.
Level 3: Unobservable inputs.
The fair value of mortgage loans held for sale as of July 31, 2024, was $8,421,583 which is classified as a Level 2 input.
Note I - Warehouse Line of Credit
The Company funds loans through multiple warehouse lines of credit. These lines are used to finance the origination of loans for which a takeout commitment from an approved investor exists. As of July 31, 2024, $8,050,315.62 was advanced on the warehouse line of credit. The total available credit was $21,000,000.
Note J - Income Tax
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently payable plus deferred taxes arising from temporary differences in the bases of assets and liabilities for financial reporting and income tax purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. The components of the deferred tax asset and liability are classified as current and noncurrent based on their characteristics. Valuation allowances are recorded to reduce deferred tax assets to the amounts management concludes are more likely than not to be realized.
Income tax benefits are recognized and measured based upon a two-step model: 1) a tax position must be more likely than not to be sustained based solely on its technical merits to be recognized, and 2) the benefit is measured as the largest dollar amount of that position that is more-likely-than-not to be sustained upon settlement. The difference between the benefit recognized and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit (UTB).
During the year ended July 31, 2024, the Corporation recorded deferred tax assets of $331,801.
The Company’s income tax returns are subject to examination by the federal taxing authorities for three years and by the California
| FM Financial Services LLC | 77 Sugar Creek Blvd, Suite 600 Sugar Land, Texas, 77478 | Info@fmfinancialservicesllc.com |
10
INSTAMORTGAGE,
INC.
AUDITED FINANCIAL STATEMENTS
AUGUST 1st, 2023 TO JULY 31, 2024
Note K - Leasing Arrangements
The Company leases its operating facility under a non-cancelable operating lease with various expiry dates. While all of the agreements provide for minimum lease payments, some include payments adjusted for inflation or variable payments based on a certain criterion. Variable payments are not determinable at the lease commencement and are not included in the measurement of the lease assets and liabilities. The lease agreements do not include any material residual value guarantees or restrictive covenants.
| Operating lease - right-of-use assets | 217,989 | |||
| Operating lease liabilities - current portion | 115,942 | |||
| Operating lease liabilities - less the current portion | 102,047 |
There are no components of initial direct costs related to the operating lease that are included in general and administrative expenses in the statement of income for the year ended July 31, 2024.
The following summarizes the cash flow information related to operating leases for the year ended July 31, 2023: Cash paid for amounts included in the measurement of lease liabilities:
| Operating cash flows for operating leases: | $ | 182,585 | ||
| Lease assets obtained in exchange for lease liabilities in the current year: | ||||
| Operating leases: | $ | 182,585 |
The following is a schedule by year of the future minimum lease payments required under this lease:
| Year Ending July 31 | Amount | |||
| 2025 | $ | 102,049 | ||
| 2026 | $ | 67,642 | ||
| 2027 | $ | 34,405 | ||
| Total | $ | 217,989 | ||
Note L - Capital and Liquidity Requirements
The Company is subject to various capital requirements in connection with seller and warehouse lending agreements that the Company has entered into with secondary market investors and warehouse lenders. Failure to maintain minimum capital requirements could result in the Company’s inability to originate loans for the respective investor or borrow funds from their warehouse lenders and, therefore, could have a direct material effect on the Company’s financial statements.
| FM Financial Services LLC | 77 Sugar Creek Blvd, Suite 600 Sugar Land, Texas, 77478 | Info@fmfinancialservicesllc.com |
11
INSTAMORTGAGE, INC.
AUDITED FINANCIAL STATEMENTS
AUGUST 1st, 2023 TO JULY 31, 2024
The Company’s adjusted net worth and minimum capital requirements by investor and warehouse lender are listed below.
| Adjusted Net Worth | Minimum Capital Requirement | |||||||
| HUD | $ | 1,657,756 | $ | 1,000,000 | ||||
| Warehouse Lenders: | ||||||||
| Lender 1 | $ | 1,657,756 | $ | 500,000 | ||||
| Lender 2 | $ | 758,232 | $ | 700,000 | ||||
| Lender 3 | $ | 758,232 | - | |||||
| The Company’s liquidity requirement for HUD is listed below: | ||||
| Cash & cash equivalents | $ | 758,232 | ||
| Trading account securities | ||||
| Total liquid assets | $ | 758,232 | ||
| Adjusted net worth | $ | 1,506,670 | ||
| Liquidity requirement | $ | 331,551 | ||
| Liquidity ABOVE the program requirements | $ | 426,681 | ||
| Liquidity BELOW the program requirements | - | |||
NOTE M - NEW ACCOUNTING GUIDANCE IMPLEMENTATION
As of January 1, 2022, the Company changed its accounting method for leases as a result of implementing the requirements in the Financial Accounting Standard Board’s Accounting Standards Codification (ASC) 842, Leases, using the modified retrospective transition method. There was no cumulative effect adjustment to the Company’s balance sheet as of January 1, 2022. Prior Year information has not been restated and continues to be reported under the accounting standards in effect for the prior period.
The new lease guidance requires the recognition of a right-of-use asset and a lease liability for operating leases. The Company elected the package of practical expedients, which allowed, among other things, for not reassessing the lease classification or initial direct costs for existing leases. The Company has not elected the hindsight practical expedient.
As of July 31, 2024, approximately $217,989 in operating lease right-of-use assets and corresponding lease liabilities were recognized. Adoption of the new guidance did not have a significant impact on the statement of income or cash flows for the year ended July 31, 2024.
Loans to Officers
The entity has provided a short-term loan of $45,000 to its officer. The loan was repaid in full during September and October 2024.
| FM Financial Services LLC | 77 Sugar Creek Blvd, Suite 600 Sugar Land, Texas, 77478 | Info@fmfinancialservicesllc.com |
12
INSTAMORTGAGE,
INC.
AUDITED FINANCIAL STATEMENTS
AUGUST 1st, 2023 TO JULY 31, 2024
Note N - Subsequent Events
Management evaluated subsequent events through October 21, 2024, the date the financial statements were available to be issued. There were no events requiring adjustment or disclosure.
| FM Financial Services LLC | 77 Sugar Creek Blvd, Suite 600 Sugar Land, Texas, 77478 | Info@fmfinancialservicesllc.com |
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