UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 001-41405

ALGORHYTHM HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware		95-3795478
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

6301 NW 5th Way, Suite 2900, Fort Lauderdale, FL

33309

(954) 596-1000

(Address of principal executive offices)

(Zip Code)

(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Act:

Title of Each Class		Trading Symbol		Name of each exchange on which registered
Common Stock, $0.01 par value per share		RIME		NASDAQ Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☐	Accelerated filer ☐
Non-accelerated filer	☒	Smaller reporting company ☒
		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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 14, 2025, there were 2,514,571 shares of the issuer’s common stock, $0.01 par value per share, outstanding.

ALGORHYTHM HOLDINGS, INC.

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of March 31, 2025 (Unaudited) and December 31, 2024	3

	Condensed Consolidated Statements of Operations for the three months ended March 31, 2025 and 2024 (Unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2025 and 2024 (Unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024 (Unaudited)	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	33

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3.	Defaults Upon Senior Securities	35

Item 4.	Mine Safety Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	36

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Algorhythm Holdings, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2025			December 31, 2024
	(Unaudited)

Assets
Current Assets
Cash	$	3,296,000		$	7,550,000
Accounts receivable, net of allowances of $396,000 and $275,000, respectively		1,385,000			4,373,000
Accounts receivable, related party		357,000			212,000
Accounts receivable		357,000			212,000
Note receivable, related party		1,201,000			701,000
Inventory		1,895,000			2,186,000
Returns asset		751,000			1,621,000
Prepaid expenses and other current assets		126,000			120,000
Total Current Assets		9,011,000			16,763,000

Property and equipment, net		253,000			284,000
Other non-current assets		81,000			124,000
Intangible assets, net		330,000			345,000
Goodwill		786,000			786,000
Total Assets	$	10,461,000		$	18,302,000

Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	1,301,000		$	3,808,000
Accrued expenses		2,414,000			4,224,000
Refund due to customer		630,000			38,000
Reserve for sales returns		1,742,000			3,355,000
Warrant liability		-			16,603,000
Current portion of notes payable to related parties		551,000			265,000
Other current liabilities		97,000			145,000
Total Current Liabilities		6,735,000			28,438,000

Notes payable to related parties, net of current portion		385,000			385,000
Total Liabilities		7,120,000			28,823,000

Commitments and Contingencies		-			-

Shareholders’ Equity (Deficit)
Preferred stock, $1.00 par value; 1,000,000 shares authorized; no shares issued and outstanding at March 31, 2025 and December 31, 2024		-			-
Common stock, $0.01 par value; 800,000,000 and 100,000,000 shares authorized; 2,394,829 and 470,825 shares issued and outstanding at March 31, 2025 and December 31, 2024		24,000			5,000
Additional paid-in capital		63,577,000			39,682,000
Accumulated deficit		(58,363,000	)		(49,172,000	)
Non-controlling interest		(1,139,000	)		(1,036,000	)
Treasury stock, 10,990 and -0- shares reserved at March 31, 2025 and 2024		(758,000	)		-
Total Algorhythm Holdings Shareholders’ Equity (Deficit)		3,341,000			(10,521,000	)

Total Liabilities and Shareholders’ Equity (Deficit)	$	10,461,000		$	18,302,000

See notes to the condensed consolidated financial statements

Algorhythm Holdings, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	March 31, 2025			March 31, 2024
	For the Three Months Ended
	March 31, 2025			March 31, 2024

Net Sales	$	1,993,000		$	2,426,000

Cost of Goods Sold		1,493,000			1,924,000

Gross Profit		500,000			502,000

Operating Expenses
Selling expenses		764,000			630,000
General and administrative expenses		2,546,000			2,159,000
Total Operating Expenses		3,310,000			2,789,000

Loss from Operations		(2,810,000	)		(2,287,000	)

Other Expenses
Change in fair value of warrant liability		(6,468,000	)		-
Interest expense		(16,000	)		(28,000	)
Total Other Expenses		(6,484,000	)		(28,000	)

Loss Before Income Tax Benefit		(9,294,000	)		(2,315,000	)

Income Tax Provision		-			(52,000	)

Net Loss		(9,294,000	)		(2,367,000	)

Net loss attributable to non-controlling interest		103,000			-

Net Loss Available to Common Stockholders	$	(9,191,000	)	$	(2,367,000	)

Loss per common share
Basic and diluted	$	(4.66	)	$	(73.76	)

Weighted Average Common and Common
Equivalent Shares:
Basic and diluted		1,972,869			32,090

See notes to the condensed consolidated financial statements

Algorhythm Holdings, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Three Months Ended March 31, 2025 and 2024

(Unaudited)

	Shares			Amount		Capital		Interest			Stock			Deficit			Total
	Common Stock					Additional Paid-in		Non-Controlling			Treasury			Accumulated
	Shares			Amount		Capital		Interest			Stock			Deficit			Total
Balance at December 31, 2024		470,825		$	5,000	$	39,682,000	$	(1,036,000	)	$	-		$	(49,172,000	)	$	(10,521,000	)

Net loss		-			-		-		(103,000	)		-			(9,191,000	)		(9,294,000	)
Exercise of Series B warrants		1,910,975			19,000		15,195,000		-			-			-			15,214,000
Stock-based compensation		23,818			-		85,000		-			-			-			85,000
Reclassification of Series A warrants to equity		-			-		7,857,000		-			-			-			7,857,000
Repurchase of common stock from related parties		(10,990	)		-		758,000		-			(758,000	)		-			-
Other		201			-		-		-			-			-			-

Balance at March 31, 2025		2,394,829		$	24,000	$	63,577,000	$	(1,139,000	)	$	(758,000	)	$	(58,363,000	)	$	3,341,000

Balance at December 31, 2023		32,090		$	-	$	33,493,000	$	-		$	-		$	(25,915,000	)	$	7,578,000
Balance		32,090		$	-	$	33,493,000	$	-		$	-		$	(25,915,000	)	$	7,578,000
																		-
Net loss		-			-		-		-			-			(2,367,000	)		(2,367,000	)
Stock-based compensation		-			-		19,000		-			-			-			19,000

Balance at March 31, 2024		32,090		$	-	$	33,512,000	$	-		$	-		$	(28,282,000	)	$	5,230,000
Balance		32,090		$	-	$	33,512,000	$	-		$	-		$	(28,282,000	)	$	5,230,000

See notes to the condensed consolidated financial statements

Algorhythm Holdings, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	March 31, 2025			March 31, 2024
	For the Three Months Ended
	March 31, 2025			March 31, 2024

Cash flows from operating activities
Net loss	$	(9,294,000	)	$	(2,367,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		91,000			136,000
Reduction in SMCB loan in exchange for services		172,000			-
Provision for estimated cost of returns		870,000			658,000
Change in fair value of warrant liability		6,468,000			-
Provision for inventory obsolescence		4,000			-
Credit losses		3,000			101,000
Reserve for sales returns		(1,614,000	)		(971,000	)
Stock-based compensation		85,000			19,000
Changes in operating assets and liabilities:
Accounts receivable		2,986,000			3,902,000
Accounts receivable - related parties		(145,000	)		136,000
Inventories		287,000			379,000
Prepaid expenses and other current assets		(6,000	)		(78,000	)
Accounts payable		(2,507,000	)		(3,669,000	)
Accrued expenses		(1,053,000	)		(299,000	)
Refunds due to customers		592,000			(300,000	)
Prepaids from customers		-			(279,000	)
Other liabilities		(47,000	)		75,000
Net cash used in operating activities		(3,108,000	)		(2,557,000	)

Cash flows from investing activities
Advances to SMCB		(672,000	)		-
Other		(1,000	)		-
Net cash used in investing activities		(673,000	)		-

Cash flows from financing activities
Repayment of note payable to related party		(473,000	)		-
Other		-			(21,000	)
Net cash used in financing activities		(473,000	)		(21,000	)
Net change in cash		(4,254,000	)		(2,578,000	)

Cash at beginning of year		7,550,000			6,703,000
Cash at end of period	$	3,296,000		$	4,125,000

Supplemental disclosures of cash flow information:
Cash paid for interest	$	17,000		$	27,000

Non-Cash investing and financing cash flow information:
Reclassification of Series A warrants to equity	$	7,857,000		$	-
Common stock issued for exercise of Series B warrants	$	15,214,000		$	-
Repurchase of common stock from related parties in exchange for promissory note	$	758,000		$	-

See notes to the condensed consolidated financial statements

Algorhythm Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2025 and 2024 (Unaudited)

Note 1 – Nature of Business

Algorhythm Holdings, Inc. (f/k/a The Singing Machine Company, Inc.) (the “Company”) is an artificial intelligence (“AI”) technology and consumer electronics holding company with two primary business units – SemiCab and Singing Machine. SemiCab is an AI-enabled software logistics business operated through the Company’s subsidiary, SemiCab Holdings, LLC. Singing Machine is a home karaoke consumer products business that designs and distributes karaoke products globally to retailers and ecommerce partners through the Company’s subsidiary, The Singing Machine Company, Inc.

The Company’s operations include its wholly-owned subsidiaries, SMC Logistics, Inc., a California corporation (“SMCL”), SMC-Music, Inc., a Florida corporation (“SMCM”), SMC (HK) Limited, a Hong Kong company (“SMH”), The Singing Machine Company, Inc., a Delaware corporation (“Singing Machine”), MICS Hospitality Holdings, Inc., a Delaware corporation (“MICS Hospitality”), MICS Hospitality Management, LLC, a Delaware limited liability company (“MICS Hospitality Management”), and MICS Nomad, LLC, a Delaware limited liability company (“MICS NY”), and its 80%-owned subsidiary, SemiCab Holdings, LLC, a Nevada limited liability company (“SemiCab Holdings”).

Effective September 5, 2024, the Company’s Certificate of Incorporation was amended to change the name of the Company from “The Singing Machine Company, Inc.” to “Algorhythm Holdings, Inc.”

On January 13, 2025, the Company’s stockholders voted to authorize the Company’s board of directors to effect a reverse stock split of the Company’s outstanding shares of common stock at a specific ratio within a range of 1-for-10 to a maximum of 1-for-250 and to amend the Company’s certificate of incorporation to increase the number of authorized common stock from 100,000,000 to 800,000,000 shares. On January 14, 2025, the Company’s board of directors approved a reverse stock split of 1-for-200 ratio and approved the filing of a certificate of amendment to the Company’s certificate of incorporation to effect the reverse stock split and to increase the Company’s authorized shares of common stock from 100,000,000 to 800,000,000. The reverse stock split took effect on February 10, 2025. All current and prior year balances have been adjusted to reflect the reverse stock split.

Note 2 – Liquidity, Going Concern and Management Plans

Going Concern Analysis

As of March 31, 2025, the Company’s cash balance was $3,296,000. This will not be sufficient to fund its planned operations for at least one year after the date the consolidated financial statements are issued. The Company has a recent history of recurring operating losses and decreases in working capital. These factors create substantial doubt about the Company’s ability to continue as a going concern for at least one year after the date that the Company’s audited consolidated financial statements are issued.

Algorhythm Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2025 and 2024 (Unaudited)

The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern and that the realization of assets and satisfaction of liabilities and commitments will continue in the ordinary course of business.

The Company plans to finance operations by obtaining additional capital through external sources of financing. It may attempt to obtain additional capital through the sale of equity securities or the issuance of debt securities. The Company has not made arrangements to obtain additional capital and can provide no assurance that additional financing will be available in an amount or on terms acceptable to the Company, if at all.

In making this assessment, management performed a comprehensive analysis of the Company’s current circumstances including its financial position, cash flow and outflow forecasts, and obligations and debts. Although management has a recent history of successful capital raises, the analysis used to determine the Company’s ability to continue as a going concern does not include cash resources outside the Company’s direct control that management expects to be available within the next 12 months.

Note 3 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited financial statements for the three months ended March 31, 2025 and 2024 have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) applicable to interim financial information and the requirements of Form 10-Q and Article 8 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and disclosures required by US GAAP for complete consolidated financial statements.

In the opinion of management, the condensed consolidated financial statements include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of the condensed consolidated financial position and the condensed consolidated results of operations. The condensed consolidated results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet as of March 31, 2025 and condensed financial statement information for the three months ended March 31, 2025 and 2024 are unaudited whereas the condensed consolidated balance sheet as of December 31, 2024 is derived from the audited consolidated balance sheet as of that date. The condensed consolidated financial statements and notes hereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2024. There have been no changes to the Company’s significant accounting policies as disclosed on the Company’s annual report on Form 10-K for the year ended December 31, 2024.

Algorhythm Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2025 and 2024 (Unaudited)

Segment Reporting

Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting (“ASC 280”), the Company’s Chief Executive Officer serves as the Company’s Chief Operating Decision Maker (“CODM”) for the purposes of ASC 280. The CODM concluded that the Company operates two reportable segments. One segment consists of its SemiCab business and the other segment consists of its Singing Machine business. The CODM manages the Company’s operations and business separately for each operating segment and uses net loss to allocate resources, making operating decisions and evaluating financial performance. The CODM also uses net loss, along with non-financial inputs and qualitative information, to evaluate the Company’s performance, establish compensation, monitor budget versus actual results, and decide the level of investment in various operating activities and other capital allocation activities. See Note 14 – Segment Information and Revenue Disaggregation – Segment Information.

Recent Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 is intended to enhance the usefulness of income tax disclosures by requiring entities to disclose specific rate reconciliations, amount of income taxes separate by federal and individual tax jurisdictions, and the amount of income (loss) from continuing operations before income tax expense (benefit) disaggregated between federal, state and foreign. ASU 2023-09 is effective for the Company for its fiscal year beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). This ASU requires disclosure on an annual and interim basis, in the notes to the financial statements, of disaggregated information about specific categories underlying certain income statement expense line items. The guidance is effective for annual periods beginning after December 15, 2026, and interim periods with annual reporting periods beginning after December 15, 2027, on a retrospective basis. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU 2024-04, Debt – Debt with Conversion and Other Options (Subtopic 470-20). This ASU clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. ASU 2024-04 is effective for annual periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities that have adopted the amendments in Update 2020-06. Adoption can be on a prospective or retrospective basis. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

Algorhythm Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2025 and 2024 (Unaudited)

Note 4 – Variable Interest Entities

The Company determined that SMCB Solutions Private Limited, an Indian Company (“SMCB”), is a Variable Interest Entity (“VIE”) because the Company provides financial support to SMCB in the form of a loan agreement to fund SMCB’s operations. The Company further determined that it is not the primary beneficiary of SMCB because the Company does not have the power to direct or control SMCB’s significant activities related to its business. Accordingly, the Company has not consolidated SMCB’s results of operations and financial position in its consolidated financial statements.

Note 5 – Property and Equipment, Intangible Assets and Goodwill

A summary of the Company’s property and equipment at March 31, 2025 and December 31, 2024 is as follows:

Schedule of Property and Equipment

	Useful	March 31,		December 31,
	Life	2025		2024

Computer and office equipment	5-7 years	$	413,000	$	412,000
Furniture and fixtures	7 years		107,000		107,000
Molds and tooling	3-5 years		2,298,000		2,297,000
Property and equipment gross			2,818,000		2,816,000
Less: Accumulated depreciation			2,565,000		2,532,000
Property and equipment net		$	253,000	$	284,000

Depreciation expense was $33,000 and $52,000 for the three months ended March 31, 2025 and 2024, respectively.

A summary of the Company’s intangible assets at March 31, 2025 and December 31, 2024 is as follows:

Schedule of Intangible Assets

	Useful	March 31,		December 31,
	Life	2025		2024

Customer Relationships	5-7 years	$	25,000	$	25,000
Trade Name	7 years		25,000		25,000
Developed Technology	3-5 years		325,000		325,000
Intangible assets gross			375,000		375,000
Less: Accumulated amortization			45,000		30,000
Intangible assets net		$	330,000	$	345,000

Algorhythm Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2025 and 2024 (Unaudited)

Amortization expense was $15,000 for the three months ended March 31, 2025. The Company did not have any intangible assets or goodwill at March 31, 2024.

The Company tested the recorded amount of goodwill for impairment on December 31, 2024 to see if the carrying amount of goodwill exceeded its carried value. The Company calculated a market-based valuation utilizing inputs classified as level 3 on the fair value hierarchy by multiplying one by projected 2025 revenue for the SemiCab business. The Company determined that no impairment of goodwill needed to be recorded during the three months ended March 31, 2025. There was no change in goodwill during the three months ended March 31, 2025.

Note 6 – Notes Payable to Related Parties

SemiCab Holdings assumed several unsecured loans from Ajesh Kapoor and Vivek Sehgal in the acquisition of SemiCab, Inc.’s business. The Company had accrued interest payable of $5,000 as of March 31, 2025 that was included as a component of accrued expenses on the Company’s condensed consolidated balance sheets. The Company incurred interest expense on these loans of $15,000 for the three months ended March 31, 2025.

The terms of each loan are summarized in the table below:

	Issue	Maturity		Interest
Note Holder	Date	Date	Status	Rate			Principal
Ajesh Kapoor	7/10/2021	7/10/2026	Current		9	%	$	150,000
Ajesh Kapoor	8/27/2021	8/26/2026	Current		9	%		235,000
Vivek Sehgal	4/17/2023	2/1/2026	Current		10	%		50,000
Ajesh Kapoor	5/5/2023	2/1/2026	Current		10	%		50,000
Ajesh Kapoor	5/17/2023	2/1/2026	Current		10	%		165,000

Balance as of March 31, 2025							$	650,000
Balance							$	650,000

Less: current portion of notes payable to related parties								265,000

Notes payable to related parties, net of current portion							$	385,000

As of December 31, 2024, the loans described above that were issued between April 17, 2023 and Mary 17, 2023 were in default. Subsequent to December 31, 2024, the Company entered into waivers and amendments with each of the note holders who are parties to those loans to extend the maturity dates of the loans to February 1, 2026.

On February 18, 2025, the Company issued a promissory note to each of Stingray Group and Regalia Ventures in the amount of $286,000 and $472,000, respectively. A discussion of these transactions and the terms of the promissory notes is set forth herein in Note 11 – Securities Transactions.

Algorhythm Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2025 and 2024 (Unaudited)

Note 7 – Credit Facilities and Other Financing Arrangements

Oxford Credit Facility

On March 28, 2024, the Company entered into a loan agreement and related revolving credit note with Oxford Commercial Finance (“Oxford”). The agreement was for a two-year term and established a secured asset-backed revolving credit facility that was comprised of a maximum $2,000,000 revolving credit facility. Availability under the credit facility was determined monthly by a borrowing base comprised of a percentage of eligible accounts receivable of the borrowers. The Company’s obligations under the credit agreement were secured by a continuing security interest in all property of each Loan Party, subject to certain excluded collateral. As of March 31, 2024, there was no availability under the Credit Facility as there were no eligible accounts receivable.

On October 17, 2024, the Company terminated the loan agreement and note and paid Oxford a termination fee of $40,000. As of the date of termination, the Company had no outstanding amounts owed to Oxford.

Agile Capital Merchant Cash Advance

In connection with the acquisition of SemiCab, Inc.’s business, the Company assumed a merchant cash advance that was payable to Agile Capital Funding, LLC that had been incurred under a financing agreement that SemiCab, Inc. had entered into on March 22, 2024. The initial amount borrowed was $315,000, with net proceeds to SemiCab, Inc. in the amount of $300,000. Repayment terms consisted of weekly payments in the amount of $16,200 for 28 weeks for a total repayment of $453,600. The effective interest rate for the borrowings is 15% per year. As of December 31, 2024, the merchant cash advance had been repaid in full.

Cedar Advance Merchant Cash Advance

In connection with the acquisition of SemiCab, Inc.’s business, the Company assumed a merchant cash advance that was payable to Cedar Advance, LLC that had been incurred under a financing agreement that SemiCab, Inc. had entered into on May 8, 2024. The initial amount borrowed was $215,000, with net proceeds to SemiCab, Inc. in the amount of $204,300. Repayment terms consisted of weekly payments in the amount of $11,100 for 28 weeks for a total repayment of $312,000. The effective interest rate for the borrowings is 18% per year. As of December 31, 2024, the merchant cash advance had been repaid in full.

Note 8 – Commitments and Contingencies

The Company is subject to claims, suits and other proceedings from time to time in the ordinary course of business that could result in fines, civil penalties, or other adverse consequences. In accordance with the provisions of ASC Topic 450, Contingencies, the Company records a liability when it believes that it is probable that a loss has been incurred and the amount can be reasonably estimated. If the Company determines that it is probable that a loss has been incurred and the loss or range of loss can be estimated, the Company discloses the estimated amount of the loss. The Company evaluates developments in its legal matters that could affect the amount of liability that has been previously accrued and makes adjustments as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters.

Algorhythm Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2025 and 2024 (Unaudited)

Efficient Capital Labs Settlement Agreement

On May 18, 2023, SemiCab, Inc. entered into an installment business loan agreement with Efficient Capital Labs, Inc. (“ECL”) pursuant to which SemiCab, Inc. borrowed the principal amount of $1,000,000. Repayments were originally scheduled to begin in June 2023 in equal installments of $91,667 for 13 months with an effective interest rate of 17.97%. The loan had a maturity date of May 17, 2024. On May 18, 2024, SemiCab, Inc. defaulted on the loan for non-payment.

On May 18, 2024, SemiCab, Inc. entered into a settlement agreement with ECL pursuant to which SemiCab, Inc. agreed to pay ECL $946,666 as follows: (i) $25,000 on or before May 20, 2024; (ii) $75,000 on or before June 3, 2024; and (iii) $84,666 on or before the first business day of each of the following 10 calendar months starting on July 1, 2024.

In connection with the acquisition of the SemiCab, Inc.’s business, the Company assumed this settlement liability. As of March 31, 2025 and December 31, 2024, the remaining unpaid balance of the settlement was $73,000 and $325,000, respectively, and was included as a component of accrued expenses on the Company’s consolidated balance sheets. The Company was in compliance with the terms of the settlement at March 31, 2025.

Derivative Litigation

On December 21, 2023, Ault Lending, LLC (“Ault Lending”), a wholly-owned subsidiary of Ault Alliance, Inc., a former shareholder of the Company, filed a derivative shareholder action in Delaware Chancery Court against the Company, its board of directors, Stingray Group, LLC (“Stingray Group”) and Regalia Ventures, LLC (“Regalia Ventures”) for alleged breach of fiduciary duty in approving a recent above-market private placement equity transaction. The complaint alleged that the Company and its board of directors followed an inadequate process in evaluating the private placement transaction that the Company completed in November 2023 and that the Company and its board of directors entered into the transaction with an intent to dilute Ault’s ownership stake in the Company. Ault Lending was seeking the following relief from the court: (i) declarations that the defendant directors breached their fiduciary duties; and that Stingray Group and Regalia Ventures aided and abetted those breaches; (ii) rescission of the Company’s sale of shares to Stingray Group and Regalia Ventures; and (iii) damages and attorney’s fees. On April 30, 2025, Ault Lending filed a motion with the court requesting that the claims be dismissed without prejudice and on that same date, the court approved the dismissal of the claims without prejudice.

Algorhythm Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2025 and 2024 (Unaudited)

OAC Flatiron & OAC Adelphi Litigation

On August 23, 2023, MICS NY entered into an Agreement of Lease (the “Lease Agreement”) with OAC 111 Flatiron, LLC and OAC Adelphi, LLC (the “Landlord”), pursuant to which MICS NY agreed to lease approximately 10,000 square feet of ground floor retail space and a portion of the basement underneath the ground floor retail space in the property located at 111 West 24^th Street, New York, New York (the “Premises”).

During the year ended December 31, 2024, the Company abandoned its plans to continue use of the leased space and exercised its early termination provision of the Lease Agreement which was not accepted by the Landlord. Due to the abandonment of the lease, all assets related to the lease were impaired. Assets including security deposits, rent deposits and right of use assets of approximately $3,878,000 were written off during the year ended December 31, 2024.

On July 26, 2024, the Landlord filed a civil action in the Supreme Court of the State of New York against MICS NY and the Company (“the Defendants”) for alleged breach of lease, seeking monetary damages including unpaid rent, future unpaid rent, and other expenses related to the lease. The complaint alleged the Defendants breached the lease in various material respects.

On September 25, 2024, the Company entered into a settlement agreement for a full release and dismissal of the complaint within five business days of the Company’s payment of $250,000. Pursuant to the settlement agreement, the Company made the first payment of $150,000 on September 25, 2024 and a final payment of $100,000 on October 25, 2024. The remaining lease liability was written off upon settlement, resulting in a loss upon termination of the lease of $4,000, net of the write off of the related lease asset discussed above. On October 29, 2024, the Landlord filed a discontinuance with prejudice.

Blue Yonder Liability

Pursuant to the asset purchase agreement with SemiCab, Inc., the Company assumed a judgement against SemiCab, Inc. regarding damages resulting from contract breach for IT subscription-based services. On March 28, 2020, SemiCab, Inc. entered into a service contract and agreement with Blue Yonder, Inc. (“Blue Yonder”) for certain IT subscription-based services. The original term of the agreement was for three years, at a price of $100,000 per year, for a total of $300,000.

On June 21, 2023, Blue Yonder filed a lawsuit claiming damages in the amount of $275,000 with the Maricopa County Superior Court in Arizona. The suit was found in favor of Blue Yonder in the amount of $509,119, subject to two separate milestone payments that would otherwise deem the entire balance due satisfied if either milestone payment is made by the Company. The first milestone payment for $175,000 and was due on July 1, 2024 and was not made. In the event this payment is made, the remaining settlement shall be deemed satisfied. If this payment is not made, the Company shall owe a total of $225,000 by October 1, 2024. In the event this payment is made, the remaining settlement shall be deemed satisfied. If neither payment is made, Blue Yonder shall be entitled to execute the full $509,119 beginning January 1, 2025. As of the date of this filing, none of the scheduled payments have been made. A liability of $509,119 has been recorded as a component of accrued expenses on the accompanying consolidated balance sheets.

Algorhythm Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2025 and 2024 (Unaudited)

On February 11, 2025, Blue Yonder filed a civil action in the Superior Court of the State of Arizona against the Company for breach of contract and to enforce a stipulated judgment entered against SemiCab, Inc. in connection with the liabilities related to Blue Yonder that the Company assumed when it acquired SemiCab, Inc.’s business. Blue Yonder alleges that, because the Company assumed these liabilities, Blue Yonder can enforce the judgment against the Company. The judgement was in the amount of $509,119. The outcome of this matter is uncertain.

Note 9 – Stock Compensation Expense

Equity Incentive Plan

On April 12, 2022, the Company’s board of directors approved The Singing Machine Company, Inc. 2022 Equity Incentive Plan. The equity plan provides for the issuance of equity incentive awards, such as stock options, stock appreciation rights, stock awards, restricted stock, stock units, performance awards and other stock or cash-based awards to the Company’s employees, officers, directors, consultants, agents, advisors and independent contractors.

As of March 31, 2025, there were 1,500 shares of common stock authorized for issuance under the plan. Of this amount, awards representing 1,183 shares of common stock had been granted under the plan and 317 shares remained available for issuance under the plan. The Company did not issue any share-based awards under the plan during the three months ended March 31, 2025 and 2024, and no shares were forfeited during the three months ended March 31, 2025. As a result, as of March 31, 2025, there were 317 shares of common stock available for issuance under the plan.

As of March 31, 2025, there was an unrecognized expense of $80,000 remaining on stock options currently vesting over time with an approximate weighted average of three months remaining until the options would be fully vested. The vested options outstanding as of March 31, 2025, had no intrinsic value.

Note 10 – Net Loss Per Share

The computations of basic and dilutive loss per share of commons stock outstanding for the three months ended March 31, 2025 and 2024 are as follows:

	Three Months Ended			Three Months Ended
	March 31, 2025			March 31, 2024
Net loss available to common shareholders	$	(9,191,000	)	$	(2,367,000	)
Basic and diluted weighted average of common stock outstanding		1,972,869			32,090
Basic and diluted loss per common share		(4.66	)		(73.76	)

Algorhythm Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2025 and 2024 (Unaudited)

The computation of the fully diluted weighted average number of shares of common stock outstanding for the three months ended March 31, 2025 and 2024 is as follows:

	Three Months Ended		Three Months Ended
	March 31, 2025		March 31, 2024
Basic weighted average common shares outstanding		1,972,869		32,090
Effect of dilutive stock options		-		-
Diluted weighted average of common shares outstanding		1,972,869		32,090

Basic net loss per share is based on the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share reflects the potential dilution assuming shares of common stock underlying in-the-money options and warrants have been issued upon the exercise of the options and warrants and the proceeds thereof were used to purchase shares of the Company’s common stock at the average market price during the period using the treasury stock method.

For the three months ended March 31, 2025, 488 shares of common stock underlying stock options and 1,138,163 shares of common stock underlying warrants were excluded from the calculation of diluted net loss per share as the result would have been anti-dilutive. For the three months ended March 31, 2024, 454 shares of common stock underlying stock options and 4,511 shares of common stock underlying warrants were excluded from the calculation of diluted net loss per share as the result would have been anti-dilutive.

Note 11 – Securities Transactions

Regalia Ventures Stock Repurchase Transaction

On November 1, 2024, the Company entered into a stock repurchase agreement with Regalia Ventures pursuant to which the Company agreed to repurchase the 5,495 shares from Regalia Ventures at a price per share equal to the higher of: (i) the closing price of the common stock on the last trading day immediately preceding the date of the repurchase agreement; or (ii) the highest volume weighted average price (VWAP) of the common stock during a pricing period of 10 consecutive trading days prior to the date of the repurchase agreement. The shares of common stock to be repurchased were originally issued to Regalia Ventures on November 21, 2023, pursuant to a certain stock purchase agreement dated November 20, 2023. The Company recorded an accrued liability in the amount of the repurchase price, which was $472,000, as of December 31, 2024 as there were no further conditions that needed to be satisfied prior to the closing date other than the issuance of the promissory note and the delivery of the shares.

On February 18, 2025, the date of the closing of the transaction, the Company issued a promissory note to Regalia Ventures in the amount of $472,000, which was the principal amount of the purchase price. The note was due and payable on demand and accrued interest at the rate of 10% per year. The Company incurred $1,000 for interest expense for the three months ended March 31, 2025 related to this promissory note. On February 27, 2025, the Company paid off the note in full. Regalia Ventures is owned and controlled by Jay B. Foreman, who serves as a member of the Company’s board of directors.

Algorhythm Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2025 and 2024 (Unaudited)

Stingray Group Stock Repurchase Transaction

On December 3, 2024, the Company entered into a stock repurchase agreement with Stingray Group pursuant to which the Company agreed to repurchase the 5,495 shares from Stingray Group at a price per share equal to the higher of: (i) the closing price of the common stock on the last trading day immediately preceding the date of the repurchase agreement; or (ii) the highest VWAP of the common stock during a pricing period of 10 consecutive trading days prior to the date of the repurchase agreement. The shares of common stock to be repurchased were originally issued to the Stingray Group on November 21, 2023, pursuant to a certain stock purchase agreement dated November 20, 2023. The Company recorded an accrued liability in the amount of the repurchase price, which was $286,000, as of December 31, 2024 as there were no further conditions that needed to be satisfied prior to the closing date other than the issuance of the promissory note and the delivery of the shares.

On February 18, 2025, the date of the closing of the transaction, the Company issued a promissory note to Stingray Group in the amount of $286,000, which was the principal amount of the purchase price. The note was due and payable on demand and accrued interest at the rate of 10% per year. The Company incurred $3,000 for interest expense for the three months ended March 31, 2025 related to this promissory note. On April 3, 2025, the Company paid off the note in full. Mathieu Peloquin is the Senior Vice-President, Marketing and Communications of Stingray Group and serves as a member of the Company’s board of directors.

December 2024 Public Offering

On December 4, 2024, the Company entered into a securities purchase agreement in connection with a public offering of an aggregate of 21,000 shares of its common stock, pre-funded warrants to purchase up to 258,412 shares of common stock, Series A warrants to purchase up to 279,412 shares of common stock, and Series B warrants to purchase up to 279,412 shares of common stock. Each share of common stock, or a pre-funded warrant in lieu thereof, was sold together with the accompanying warrants to purchase one share of common stock. The Company received aggregate gross proceeds upon the closing of the offering of approximately $9,000,000, before deducting placement agents’ fees and other offering expenses.

The Series A and B warrants were exercisable only upon receipt of such shareholder approval as may be required by the applicable rules and regulations of the Nasdaq Stock Market, LLC (the “Nasdaq”) to permit the exercise of the Series A and B warrants. The Series A and B warrants include an exercise price adjustment feature upon shareholder approval, whereby the exercise price will adjust to the greater of the lowest daily volume weighted average price during the reset period or the floor price, which was $6.844 per share, with a proportional increase in the number of warrant shares.

The Company assessed the Series A and B warrants under ASC 480 and ASC 815 and determined that the Series A and B warrants needed to be classified as liabilities as they did not meet the requirements to be considered indexed to the Company’s own stock, due to: (a) the adjustment to the exercise price tied to shareholder approval, and (b) the potential change in the settlement amount of the Series B warrants upon an alternative cashless exercise election. Additionally, the Company concluded at issuance that it would not have sufficient authorized and available shares of common stock to settle the Series A and B warrants. See Note 13 – Derivative Liability.

Algorhythm Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2025 and 2024 (Unaudited)

On January 13, 2025, the Company’s stockholders approved the issuance of the Series A and B warrants, at which time all of the Series A and B warrants became exercisable. This approval triggered an adjustment to the exercise price of the Series A warrants to $8.38. In connection with this approval, the holders of the Series B Warrants exercised their warrants in full under the alternative cashless exercise provision, resulting in the issuance of 1,910,975 shares of common stock and no additional proceeds received by the Company. The warrant liability reflected on the Company’s consolidated balance sheet at December 31, 2024 was reclassified to additional paid-in capital on the Company’s condensed consolidated balance sheet at March 31, 2025. The Company recognized a loss of $6,468,000 for the change in the fair value measurement of the warrant liability as of the date the warrant liability was reclassified to equity.

Note 12 – Derivative Liability

During the three months ended March 31, 2025, the Company had derivative warrant liabilities that were measured at fair value on a recurring basis. These fair value measurements were estimated using a Monte Carlo simulation model, with the key inputs described below. Each of these fair value measurements was considered to be a Level 3 measurement by the Company as they used significant unobservable inputs, including the probability and expected date of stockholder approval.

The key inputs for the Series A warrant liabilities were as follows:

Warrant Liability – Series A Warrants	January 17, 2025			December 31, 2024
Stock price on valuation date	$	8.38		$	18.00
Exercise price	$	8.38		$	34.00
Number of warrants		1,133,652			279,412
Remaining term (years)		4.88			4.93
Annual equity volatility		126.0	%		113.0	%
Annual volume volatility		377.0	%		379.0	%
Risk-free interest rate		4.32	%		4.29	%
Expected stockholder approval date		January 13, 2025			January 14, 2025
Expected stockholder approval probability		100	%		50	%

The Series B warrant liabilities were remeasured on each exercise date based on the closing price of the Company’s common stock on the date the warrants were exercised.

On January 13, 2025, the Company’s shareholders approved the issuance of the Series A and Series B Warrants. This approval triggered the adjustment to the exercise price described above. In connection with this approval, the holders of the Series B warrants exercised their warrants in full under the alternative cashless exercise provision, resulting in the issuance of 1,910,975 shares of common stock and no additional proceeds received by the Company. The Series A warrants became exercisable for 1,133,652 shares of common stock at an exercise price of $8.38 per share after the shareholder approval adjustment was finalized on March 17, 2025. In addition, the Company reassessed the classification of the Series A warrants after the shareholder approval adjustment was finalized, concluding that the Series A warrants now met the requirements for equity classification under ASC 480 and ASC 815. The Company adjusted the Series A Warrants to fair value upon reclassification and reclassified that value to additional paid-in capital during the three months ended March 31, 2025.

Algorhythm Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2025 and 2024 (Unaudited)

The following table provides a roll-forward of the fair value of the derivative liabilities described above during the three months ended March 31, 2025:

	Series A Warrants		Series B Warrants			Total Warrant Liabilities
Balance at December 31, 2024	$	5,456,000	$	11,147,000		$	16,603,000
Exercises		—		(15,214,000	)		(15,214,000	)
Loss on change in fair value		2,401,000		4,067,000			6,468,000

SEC Form 10-Q filed by Algorhythm Holdings Inc.