Algorhythm Holdings, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this report contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this report are based on information available to us on the date hereof, and, except as required by law, we assume no obligation to update any such forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth herein under Item 1A. Risk Factors and elsewhere in this report. The following should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this report and the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2024. Overview We are an artificial intelligence (“AI”) technology company that currently has one business unit, which is SemiCab. SemiCab is an AI-enabled software logistics business operated through our subsidiary, SemiCab Holdings, LLC. Prior to August 1, 2025, we had a second business unit, which was Singing Machine. Singing Machine was a home karaoke consumer products business that designed and distributed karaoke products globally to retailers and ecommerce partners through our subsidiary, The Singing Machine Company, Inc. We sold our Singing Machine business on August 1, 2025. Accordingly, we no longer own or operate the Singing Machine business line. SemiCab SemiCab is a cloud-based Collaborative Transportation Platform built to achieve the scalability required to predict and optimize loads and the use of trucks. To orchestrate collaboration across manufacturers, retailers, distributors, and their carriers, SemiCab uses real-time data from API-based load tendering and pre-built integrations with Transportation Management System (“TMS”) and Electronic Logging Device (“ELD”) partners. To build fully loaded round trips, SemiCab uses AI/ML techniques and advanced predictive optimization models. Since 2020, SemiCab has enabled major retailers, brands and transportation providers to address their transportation needs. SemiCab’s Orchestrated Collaboration™ AI model has proven to increase transportation capacity, improve asset utilization, reduce empty miles, lower logistics costs, and provide visibility into the entire transportation network. Models show that our SemiCab technology has the capability of reducing costs through optimization. Additionally, our SemiCab technology has the potential to play a key role in the improved sustainability model. Based on its proven ability to improve truck utilization rates, this could result in a dramatic reduction in the carbon footprint of the industry. The optimization of existing truck utilization can add trucking capacity without adding more trucks, drivers or driven miles which addresses common problems plaguing the industry like severe driver shortage and road congestion. 29 Singing Machine Through Singing Machine, we engaged in the development, marketing, and sale of consumer karaoke audio equipment, accessories, and musical recordings. We were a leading global karaoke and music entertainment company that specialized in the design and production of quality karaoke and music enabled consumer products for adults and children. Our products were among the most widely available karaoke products internationally. We sold our Singing Machine business on August 1, 2025. Accordingly, we no longer own or operate the Singing Machine business line. Recent Corporate Events Name and Symbol Change Effective September 5, 2024, our Certificate of Incorporation was amended to change our name from “The Singing Machine Company, Inc.” to “Algorhythm Holdings, Inc.” In addition, effective September 8, 2024, our ticker symbol was changed from “MICS” to “RIME.” Reverse Stock Split and Increase in Authorized Shares On January 13, 2025, our stockholders voted to authorize our board of directors to effect a reverse stock split of the outstanding shares of our common stock at a specific ratio within a range of 1-for-10 to a maximum of 1-for-250 and to amend our certificate of incorporation to increase the number of authorized common stock from 100,000,000 to 800,000,000 shares. On January 14, 2025, our board of directors approved a reverse stock split of 1-for-200 ratio and approved the filing of a certificate of amendment to our certificate of incorporation to effect the reverse stock split and to increase our authorized shares of common stock from 100,000,000 to 800,000,000. The reverse stock split took effect on February 10, 2025. In accordance with SEC rules and regulations, all share numbers and prices throughout this report and our condensed consolidated financial statements reflect post-reverse stock split numbers. Acquisition of SMCB On May 2, 2025 (the “Closing Date”), we and SemiCab Holdings entered into an equity purchase agreement with SemiCab Inc. pursuant to which: (i) SemiCab Holdings purchased 9,999 shares of the issued and outstanding equity shares, Rs. 10 par value, of SMCB, representing 99.99% of the issued and outstanding equity shares of SMCB, for $1,750,000, the payment of which amount was evidenced by the issuance of a promissory note by us to SemiCab, Inc., and (ii) we purchased the 20% membership interest in SemiCab Holdings then held by SemiCab, Inc. for aggregate consideration consisting of 119,742 shares of our common stock. The promissory note provides that $1,500,000 is due and payable by us on the first anniversary of the Closing Date and the remaining $250,000 is due and payable by us on the 18-month anniversary of the Closing Date. The promissory note bears interest at six percent per annum. On the Closing Date, we and SemiCab Holdings entered into an amended and restated employment agreement with each of Ajesh Kapoor and Vivek Sehgal pursuant to which Mr. Kapoor agreed to serve as the Chief Executive Officer and Chief Technology Officer of SemiCab Holdings and Mr. Sehgal agreed to serve as the Chief Product Officer of SemiCab Holdings. Pursuant to the terms of the employment agreements, SemiCab Holdings granted Messrs. Kapoor and Sehgal a membership interest in SemiCab Holdings with three quarters of each such grant subject to certain forfeiture rights tied to continued employment with SemiCab Holdings. Additionally, Mr. Kapoor was granted the right to serve as a member of our board of directors and the right to appoint an additional member of our board of directors upon the occurrence of certain specified events. 30 Also on the Closing Date, we, SemiCab Holdings, Ajesh Kapoor and Vivek Sehgal entered into an amended and restated limited liability company agreement for SemiCab Holdings which sets forth the terms and conditions governing the operation and management of SemiCab Holdings. Sale of Singing Machine On August 1, 2025, we entered into an asset purchase agreement with SMC and Stingray Music USA, Inc. (“Stingray USA”) pursuant to which Stingray USA purchased substantially all of the assets, and assumed most of the liabilities, associated with our Singing Machine business for $500,000. The transaction closed on August 1, 2025. We determined that the sale of the Singing Machine business met the criteria under Accounting Standards Codification (“ASC”) 205-20, Presentation of Financial Statements – Discontinued Operations (“ASC 205-20”), to be classified as a discontinued operation as the sale represents a strategic shift that will have a significant effect on our operations and financial results. Accordingly, we have accounted for the Singing Machine business as a discontinued operation in this Quarterly Report on Form 10-Q. Unless otherwise noted, the information contained in this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations consists exclusively of our continuing operations and does not include the operations of the Singing Machine business. Additional information concerning the Singing Machine business is presented in Note 19 -- Discontinued Operations of our condensed consolidated financial statements. Streeterville Capital Financing On November 13, 2025, we entered into Secured Pre-Paid Purchase #2 with Streeterville Capital, LLC, a Utah limited liability company (“Streeterville”), under that certain securities purchase agreement (the “Securities Purchase Agreement”), dated August 21, 2025, between us and Streeterville. Under the Securities Purchase Agreement, we agreed to issue and sell shares of our common stock to Streeterville in one or more pre-paid purchases (each, a “Pre-Paid Purchase” and collectively, the “Pre-Paid Purchases”) for an aggregate purchase price of up to $20,000,000. Secured Pre-Paid Purchase #2 provides for a second Pre-Paid Purchase in the principal amount of $5,450,000, before deducting an original issue discount of $450,000 (the “Second Pre-Paid Purchase”). The Second Pre-Paid Purchase accrues interest at the rate of nine percent (9%) per annum and has a maturity date of three years. The Second Pre-Paid Purchase is similar to the first Pre-Paid Purchase that we completed on August 21, 2025, however the Second Pre-Paid Purchase is secured by cash in an amount not less than the lesser of: (i) $4,500,000, and (ii) 90% of the then-current outstanding balance of the Second Pre-Paid Purchase (the “Minimum Balance Amount”). The Minimum Balance Amount is being held in a deposit account (the “DACA Account”) held by RIME Holdings, LLC, a Utah limited liability company and wholly-owned subsidiary of ours that we formed in connection with this transaction (“RIME Holdings”), pursuant to a Deposit Account Control Agreement, dated November 13, 2025, by and among RIME Holdings, Lakeside Bank, an Illinois banking company, and Streeterville (the “DACA Agreement”). Accordingly, of the $5,000,000 proceeds that we received from the Second Pre-Paid Purchase, $4,500,000 were placed in the DACA Account. We have the right to use funds in the DACA Account to repay any portion of the outstanding balance of the Second Pre-Paid Purchase, but only so long as the payment does not cause the outstanding balance to drop below the Minimum Balance Amount. As long as no event of default has occurred, we may withdraw from the Deposit Account any funds in excess of the Minimum Balance Amount. The Second Pre-Paid Purchase is secured by the Guaranty, the Security Agreement, and the IP Security Agreement (each as defined in the Securities Purchase Agreement). In addition, RIME Holdings executed a guaranty of the obligations outstanding under the Second Pre-Paid Purchase for the benefit of Streeterville. We entered into a new placement agency agreement with Univest Securities, LLC to serve as the placement agent in the offering (the “Placement Agent”) that supersedes the placement agency agreement that we previously entered into with them on August 21, 2025 in connection with the offering. We agreed to pay the Placement Agent a cash fee equal to eight percent (8%) of the aggregate gross proceeds received by us from any Pre-Paid Purchases that we complete and reimburse the Placement Agent for legal fees in the amount of $50,000. The cash fee for the Second Pre-Paid Purchase must be paid on February 28, 2026; provided, however , that we may request that the payment date be extended by 90 days. We completed the offer and sale of these securities in a private placement transaction that was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act without engaging in any advertising or general solicitation of any kind. Strategy We intend to invest in our SemiCab business to develop and grow it into a significant revenue producer for us. This will involve investments in the continued research and development of its technology, the hiring of additional qualified employees, marketing and advertising initiatives, and back-office support. While SemiCab is a nascent business, it has already acquired several multinational consumer products companies as customers. We believe that as existing customers experience the benefits of our SemiCab logistics and distribution solutions, they will begin to increase their use of SemiCab. We also believe that SemiCab’s proven ability to improve truck utilization rates and improve trucking capacity without adding more trucks, drivers or driven miles will be of substantial interest to additional companies that can benefit from SemiCab. We acquired the United States component of our SemiCab business on July 3, 2024 and acquired the India component of our SemiCab business on May 2, 2025. We may make additional investments in companies operating in the AI distribution and logistics space that we believe are complementary to our SemiCab business. Our investments could involve an acquisition of the assets or equity of complementary companies or businesses or could involve a strategic partnership or joint venture with complementary companies or businesses or digital asset treasury strategies. We believe that additional investments could provide us with new AI logistics and distribution technologies, services and resources that we can implement across our entire SemiCab business or could help us to more quickly expand our SemiCab footprint into other parts of the world. We are actively evaluating additional opportunities to expand our SemiCab business through investments in complementary AI logistics and distribution businesses and companies. 31 Financial Results We generated revenue of $1,744,000 for the three-month period ended September 30, 2025, compared to $127,000 for the three-month period ended September 30, 2024. The increase in revenue was due primarily to the addition of net sales generated by our SemiCab business resulting from our acquisition of SMCB on May 2, 2025. Gross loss was $351,000, or 20% of net sales, for the three-month period ended September 30, 2025, compared to $32,000, or 25% of net sales, for the three-month period ended September 30, 2024. The increase was due primarily to an increase of $1,617,000 for net sales and an increase of $1,936,000 for cost of sales. Our operating expenses were $1,214,000 for the three-month period ended September 30, 2025, compared to $1,791,000 for the three-month period ended September 30, 2024. The decrease in operating expenses was due primarily to a decrease of $816,000 for operating expenses incurred during the three-month period ended September 30, 2024 related to acquisition of the SemiCab business on July 3, 2024. We incurred net loss from continuing operations of $1,882,000 for the three-month period ended September 30, 2025 compared to $2,106,000 for the three-month period ended September 30, 2024. We generated net loss available to common shareholders of $2,962,000, or $1.15 per share of common stock, for the three-month period ended September 30, 2025, compared to a net gain available to common shareholders of $1,195,000, or $0.13 per share of common stock, for the three-month period ended September 30, 2024. The net gain available to common shareholders for 2024 was due primarily to a one-time gain of $3,874,000 that we recognized on the early termination of an operating lease that we included in discontinued operations as a result of the sale of our Singing Machine business. We had total assets of $10,845,000 and $18,302,000 at September 30, 2025 and December 31, 2024, respectively. Net cash used by operating activities attributable to continuing operations was $4,343,000 for the nine-month period ended September 30, 2025 compared to $3,770,000 for the nine-month period ended September 30, 2024. Outlook We expect net sales generated from our SemiCab business to increase substantially over the next 12 months as we generate more business from our growing customer base in India. We expect gross loss to decrease over the next 12 months as the increase in net sales that we expect to generate from our SemiCab business exceeds the increase in cost of sales that we expect to incur in connection with the growth in sales. We expect operating expenses to increase over the next 12 months due to increases in legal and accounting expenses that we incur as we engage in additional capital-raising activities as needed to fund our business and increases in expenses that we expect to incur to fund the growth and development of our SemiCab business. Net loss available to common stockholders is expected to remain at similar levels. We expect cost reduction activities that we are engaging in to beneficially impact our net loss, but expect this to be offset by increases in the investment we will continue to make in the growth and development of our SemiCab business. 32 Notwithstanding the foregoing, in the event we complete additional acquisitions of controlling or non-controlling financial interests in other complementary businesses or companies through mergers, acquisitions, joint ventures or other strategic initiatives, such as the acquisition of the United States component of our SemiCab business on July 3, 2024 and the acquisition of the India component of our SemiCab business on May 2, 2025, our financial results will include and reflect the financial results of the target entities. Accordingly, the completion of any such transactions in the future may have a substantial beneficial or negative impact on our business, financial condition and results of operations. Comparison of the Three-Month Periods Ended September 30, 2025 and 2024 Net Sales Net sales consist of sales generated by our SemiCab business. Net sales increased $1,617,000 to $1,744,000 for the three-month period ended September 30, 2025, compared to $127,000 for the three-month period ended September 30, 2024. The increase in net sales was due primarily to the addition of net sales generated by SMCB, which we acquired on May 2, 2025. We expect net sales to increase over the next 12 months as we generate more business from our growing customer base in India Cost of Sales Cost of sales consists primarily of freight, handling and servicing costs that we incur in connection with our SemiCab business. Cost of sales increased $1,936,000 to $2,095,000 for the three-month period ended September 30, 2025, compared to $159,000 for the three-month period ended September 30, 2024. The increase in cost of sales was due primarily to the addition of freight, handling and servicing costs incurred by SMCB, which we acquired on May 2, 2025. We expect costs of sales to increase over the next 12 months in connection with the increase in net sales that we expect to generate from our SemiCab business. Operating Expenses Operating expenses consist of selling expenses and general and administrative expenses. Selling Expenses Selling expenses consist primarily of marketing and advertising activities that we engage in from time to time. Selling expenses were $3,000 for the three-month period ended September 30, 2025. We did not incur any selling expenses for the three-month period ended September 30, 2024. We expect selling expenses to increase over the next 12 months as we being to devote more resources to marketing and advertising activities to support the growth of our SemiCab business. General and Administrative Expenses General and administrative expenses consist primarily of payroll expenses, legal and accounting expenses, and rent expense associated with our SemiCab business and corporate expenses. 33 General and administrative expenses decreased $580,000 to $1,211,000 for the three-month period ended September 30, 2025, compared to $1,791,000 for the three-month period ended September 30, 2024. The decrease was due primarily to a decrease of $816,000 for operating expenses incurred during the three-month period ended September 30, 2024 in connection with our acquisition of SemiCab’s business on July 3, 2024. We expect general and administrative expenses to increase over the next 12 months as we continue to invest in the growth and development of our SemiCab business. Other Expenses Other expenses consist of financing costs that we incurred under our loans and other financing activities. Other expenses increased $10,000 to $293,000 for the three-months ended September 30, 2025, compared to $283,000 for the three-month period ended September 30, 2024. We may incur additional financing costs during the next 12 months and expect to continue to incur additional non-operating expenses in connection with the operation and growth of our SemiCab business. Net Loss Attributable to Non-Controlling Interest Net loss attributable to non-controlling interest consists of the loss allocated to SemiCab, Inc., which owned a 20% of the outstanding membership interests of SemiCab Holdings until May 2, 2025, and Ajesh Kapoor and Vivek Sehgal, who collectively owned 20% of the outstanding membership interests of SemiCab Holdings beginning May 2, 2025. SemiCab Holdings owns our SemiCab business. We acquired our SemiCab business from SemiCab, Inc. on July 3, 2024, and, as part of the transaction, granted SemiCab, Inc. a 20% membership interest in SemiCab Holdings. The net loss attributable to non-controlling interest of $20,000 for the three-month period ended September 30, 2025 represents the amount of loss incurred by SemiCab Holdings that was allocated to Ajesh Kapoor and Vivek Sehgal through their collective 20% membership interest in SemiCab Holdings for the three-month period ended September 30, 2025. The net loss attributable to non-controlling interest of $221,000 for the three-month period ended September 30, 2024 represents the amount of loss incurred by SemiCab Holdings that was allocated to SemiCab, Inc. through its 20% membership interest in SemiCab Holdings for the three-month period ended September 30, 2024. We expect net loss attributable to non-controlling interest to increase over the next 12 months as we continue to invest in the development and growth of SemiCab’s business. Comparison of the Nine-Month Periods Ended September 30, 2025 and 2024 Net Sales Net sales increased $2,891,000 to $3,018,000 for the nine-month period ended September 30, 2025, compared to $127,000 for the nine-month period ended September 30, 2024. The increase in net sales was due primarily to the addition of net sales generated by SMCB, which we acquired on May 2, 2025. Cost of Sales Cost of sales increased $3,557,000 to $3,716,000 for the nine-month period ended September 30, 2025, compared to $159,000 for the nine-month period ended September 30, 2024. The increase in cost of sales was due primarily to the addition of freight, handling and servicing costs incurred by SMCB, which we acquired on May 2, 2025. 34 Operating Expenses Selling Expenses Selling expenses were $3,000 for the nine-month period ended September 30, 2025. We did not incur any selling expenses for the nine-month period ended September 30, 2024. General and Administrative Expenses General and administrative expenses increased $354,000 to $3,184,000 for the nine-month period ended September 30, 2025, compared to $2,830,000 for the nine-month period ended September 30, 2024. The increase was due primarily to increases in general and administrative expenses incurred in the growth and development of our SemiCab business. Other Expenses Other expenses increased $6,476,000 to $6,804,000 for the nine-month period ended September 30, 2025, compared to $328,000 for the nine-month period ended September 30, 2024. The increase was due primarily to an increase of $6,468,000 for a one-time, non-cash loss that we incurred in connection with the change in fair value of warrants sold in the public offering of securities that we completed on December 6, 2024. Net Loss Attributable to Non-Controlling Interest The net loss attributable to non-controlling interest of $347,000 represents the amount of loss incurred by SemiCab that was allocated to SemiCab, Inc. through its 20% membership interest in SemiCab Holdings for period beginning January 1, 2025 and ending May 2, 2025, and the amount of loss incurred by SemiCab that was allocated to Ajesh Kapoor and Vivek Sehgal through their collective 20% membership interest in SemiCab Holdings for the period beginning May 2, 2025 and ending September 30, 2025. The net loss attributable to non-controlling interest of $221,000 for the nine-month period ended September 30, 2024 represents the loss incurred by SemiCab Holdings that was allocated to SemiCab, Inc. through its 20% membership interest in SemiCab Holdings for the nine-month period ended September 30, 2024. Liquidity And Capital Resources Since our inception, we have funded our operations primarily through cash generated by our operations, private sales of equity securities and the use of short- and long-term debt. As of September 30, 2025, our cash balance was $2,839,000. Net cash used by operating activities attributable to continuing operations was $4,343,000 during the nine-month period ended September 30, 2025, compared to $3,770,000 during the nine-month period ended September 30, 2024. The increase of $573,000 was due primarily to an increase of $7,523,000 for loss from continuing operations, partially offset by an increase of $6,468,000 for the loss that we incurred in connection with the change in fair value of warrants sold in the public offering of securities that we completed on December 6, 2024. 35 Net cash used by investing activities attributable to continuing operations was $1,888,000 during the nine-month period ended September 30, 2025, compared cash provided by investing activities attributable to continuing operations of $17,000 during the nine-month period ended September 30, 2024. The difference of $1,905,000 was due primarily to increases of $1,172,000 for advances to SMCB under our loan agreement with them, $758,000 for repurchases of shares of our common stock, and $541,000 for the capitalization of internal use software costs. These increases were partially offset by an increase of $593,000 for cash received in connection with our acquisition of SMCB on May 2, 2025. Net cash provided by financing activities attributable to continuing operations was $4,115,000 during the nine-month period ended September 30, 2025, compared to $1,103,000 during the nine-month period ended September 30, 2024. The difference of $3,012,000 was due primarily to an increase of $4,293,000 for proceeds from the issuance of promissory notes, partially offset by a decrease of $1,489,000 for proceeds from the sale of stock. Our limited cash resources along with our recent history of recurring operating losses and decreases in working capital create substantial doubt about our ability to continue as a going concern. To date, our capital needs have been met through cash generated by our operations, sales of our equity securities and the use of short- and long-term debt to fund our operations. We have used these sources of capital to pay virtually all of the costs and expenses that we have incurred to date. These costs and expenses have been comprised primarily of the professional fees, employee compensation expenses, and general and administrative expenses discussed above. We intend to continue to rely upon each of these sources to fund our operations and expansion efforts, including additional acquisitions of controlling or non-controlling financial interests in other complementary businesses and companies during the next 12 months . We can provide no assurance that these sources of capital will be adequate to fund our operations and expansion efforts during the next 12 months. If these sources of capital are not adequate, we will need to obtain additional capital through alternative sources of financing. We may attempt to obtain additional capital through the sale of equity securities or the issuance of short- and long-term debt. If we raise additional funds by issuing shares of our common stock, our stockholders will experience dilution. If we raise additional funds by issuing securities exercisable or convertible into shares of our common stock, our stockholders will experience dilution in the event the securities are exercised or converted, as the case may be, into shares of our common stock. Debt financing may involve agreements containing covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, issuing equity securities, making capital expenditures for certain purposes or above a certain amount, or declaring dividends. In addition, any equity securities or debt that we issue may have rights, preferences and privileges senior to those of the shares of common stock held by our stockholders. We have 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 us, if at all. Our ability to obtain additional capital will be subject to a number of factors, including market conditions and our operating performance. These factors may make the timing, amount, terms and conditions of any proposed future financing transactions unattractive to us. If we cannot raise additional capital when needed, or if such capital cannot be obtained on acceptable terms, we may not be able to pay our costs and expenses as they are incurred, take advantage of future acquisition opportunities, respond to competitive pressures or unanticipated events, or otherwise execute upon our business plan. This may adversely affect our business, financial condition and results of operations and, in the extreme case, cause us to discontinue our operations. 36 Off-Balance Sheet Arrangements As of September 30, 2025, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, that had been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. Critical Accounting Estimates Our interim financial statements were prepared in accordance with United States generally accepted accounting principles, which require management to make subjective decisions, assessments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions increases, such judgements become even more subjective. While management believes that its assumptions are reasonable and appropriate, actual results may be materially different than estimated. Our critical accounting estimates and assumptions have not materially changed from those identified in our Annual Report on Form 10-K for the year ended December 31, 2024. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not required for small reporting companies.