Algorhythm Holdings, Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance that the controls and procedures would meet management’s objectives. As of December 31, 2025, we carried out an evaluation of the effectiveness of our disclosure controls and procedures as defined by Rule 13a-15(e) under the Exchange Act under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2025, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management’s Report on Internal Control over Financial Reporting Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes policies and procedures that: (a) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; 49 (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our consolidated financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of our assets that could have a material effect on our consolidated financial statements. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design safeguards to reduce, though not eliminate, this risk. Our management used the framework set forth in the report entitled Internal Control – Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Based on this assessment, our management concluded that our internal control over financial reporting was not effective at December 31, 2025, due to the existence of material weaknesses in our internal controls. A material weakness is a control deficiency, or a combination of control deficiencies, that results in a more than remote likelihood that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Our management, in consultation with our independent registered public accounting firm, concluded that the following material weaknesses existed in the following areas as of December 31, 2025: 1. We lacked sufficient resources in our accounting department restricting our ability to review and approve certain material journal entries which increases the likelihood that a material misstatement of interim or annual financial statements might not be prevented. 2. We lacked sufficient resources in our accounting department, which resulted in our ability to have proper segregation of duties between the preparation, review and approval certain material reconciliations related to financial reporting in a timely manner. 3. Due to our lack of sufficient resource restrictions in our accounting department, we have not established a three-way match of documents or other controls precise enough to detect a material misstatement in revenue. 50 To remediate these material weaknesses, we intend to conduct a thorough review of the accounting department to ensure that the staff has the appropriate training and experience. We may hire one or more accounting persons to assist us with our accounting and financial reporting function. We also intend to implement more comprehensive written policies and procedures that address separation of duties and proper accounting and financial reporting. Notwithstanding the existence of these material weaknesses in our internal controls, we believe that our consolidated financial statements fairly present, in all material respects, our balance sheets at December 31, 2025 and 2024, and our statements of operations, stockholders’ deficit and cash flows for the years ended December 31, 2025 and 2024. This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only our management’s report in this annual report. Changes in Internal Control Over Financial Reporting There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. Rule 10b5-1 Trading Arrangements During the three-month period ended December 31, 2025, none of our officers or directors adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections. Not applicable. 51 PART III Item 10. Directors, Executive Officers and Corporate Governance. The following chart sets forth certain information about each of our directors and executive officers. Name Age Positions Held Gary Atkinson 43 Chief Executive Officer, Secretary and Chairman of the Board of Directors Alex Andre 51 Chief Financial Officer and General Counsel Bernardo Melo 49 Director Harvey Judkowitz 81 Director Ajesh Kapoor 59 Director Scott Thorn 46 Director Kapil Gupta 58 Director Board of Directors We believe that our board of directors should be composed of individuals with sophistication and experience in many substantive areas that impact our business. We believe that experience, qualifications or skills in the following areas are most important: (i) organizational leadership and vision; (ii) strategic, financial and operational planning; (iii) AI technology and freight, logistics and distribution industry experience; (iv) corporate restructuring and performance enhancement; (v) corporate finance; and (vi) experience as a board member of other corporations. These areas are in addition to the personal qualifications described in this section. We believe that our current board members possess the professional and personal qualifications necessary for board service and have highlighted particularly noteworthy attributes for these board members below. The principal occupations and business experience of our current directors are as follows: Gary Atkinson has served as our Chief Executive Officer since May 2012, as our Secretary since January 2008, and as a member of our board of directors since August 2022. Prior to that, Mr. Atkinson served as our Interim Chief Executive Officer from November 2009 to May 2012 and as our General Counsel from January 2008 to November 2009. Mr. Atkinson is a licensed attorney in Florida and Georgia. He graduated from the University of Rochester with a bachelor’s degree in economics and received a Juris Doctorate and Masters in Business Administration from Case Western Reserve University School of Law and Weatherhead School of Management. We believe that Mr. Atkinson is qualified to serve on our board of directors because of his strong leadership, business acumen and analytical skills along with his extensive experience with capital markets. 52 Bernardo Melo has served as a member of our board of directors since July 2022. He has also served as our Chief Revenue Officer from April 2022 to August 2025 and as our Vice President of Global Sales and Marketing from 2008 to April 2022. He has also served as a member of our board of directors since July 2022. Prior to that, Mr. Melo held dual roles with us managing the operations, licensing and sales of the music division while concentrating on hardware sales for the Latin America and Canadian market as well as key U.S. accounts such as Walmart. We believe that Mr. Melo is qualified to serve as a member of our board of directors because of his substantial sales and marketing expertise. Harvey Judkowitz has served as a member of our board of directors since March 2004 and serves as the Chairman of our Audit Committee. He is licensed as a certified professional accountant in New York and Florida and has owned his own accounting firm since 1988. He also served as the Chief Executive Officer and Chairman of our board of directors of UniPro Financial Services, a diversified financial services company, up until the company was sold in September 2005. Prior to that he served as the President and Chief Operating Officer of Photovoltaic Solar Cells, Inc., a producer of photovoltaic solar cells. We believe that Mr. Judkowitz is qualified to serve as a member of our board of directors because of his organizational leadership and management skills and his accounting expertise. Ajesh Kapoor has served as the Chief Executive Officer of SemiCab Holdings, a subsidiary of ours that owns and operates our SemiCab AI logistics and distribution business, since July 2024 and is the Founder and Chief Executive Officer of SemiCab, Inc., a company that he founded in July 2018 that previously owned our SemiCab AI logistics and distribution business. He has also served as a member of our board of directors since May 2025. From April 2015 to July 2018, Mr. Kapoor served as the Vice President of Product Management of GT Nexus, a division of Infor, the world’s largest cloud-based B2B multi-enterprise network and execution platform for global trade and supply chain management, and from April 2012 to March 2015, served as a Senior Director of GT Nexus. Earlier in his career, Mr. Kapoor served as Global Head of Supply Chain Advisory Services of the Retail, CPG and Transportation Industry segments of Wipro Technologies, a multi-national technology company that provides information technology, consulting and business process services. He was also the Co-Founder and Chief Technology Officer of GEOCOMtms, a division of Blue Yonder Group, Inc. that provides optimization software to manage multiple-stop daily delivery fleet routing and scheduling. Mr. Kapoor received a BE in Mechanical Engineering from the Indian Institute of Technology, Roorkee, an MBA from Panjab University, and an MS in Operations Research from the Georgia Institute of Technology. We believe that Mr. Kapoor is qualified to serve a member of our board of directors because of his extensive logistics and supply chain technology innovation and leadership experience. Scott Thorn has served as a member of our board of directors since October 2025. Mr. Thorn has served as the President and Chief Operating Officer of InvitedHome, a leading luxury hospitality and real estate services company operating in premier U.S. ski destinations, since October 2024. Prior to that, he served as the Co-Founder and Chief Strategy Officer of Open Book Extracts, a cGMP-certified manufacturer of premium federally legal hemp-derived cannabinoid ingredients and wellness products, from February 2019 to October 2024. Earlier in his career, Scott served as a Managing Director of Douglas Wilson Companies, a leading provider of specialized business, receivership, and real estate services. 53 We believe that Mr. Thorn is qualified to serve as a member of our board of directors because of his substantial experience as a strategic thought leader executing aggressive business and revenue growth strategies for early-stage, high-growth companies. Kapil Gupta has served as a member of our board of directors since October 2025. Mr. Gupta is a seasoned global technology and business leader with more than 20 years of experience driving innovation, operational excellence, and large-scale digital transformation across the public and private sectors. He has served as the Service Line Leader for Application Operations – Public Markets (US) at IBM, a global technology innovator, since April 2025. He has also served as a Project Executive for California’s Medicaid Program since May 2017. Earlier in his career, Mr. Gupta held senior leadership roles at Cambridge Solutions, a leading provider of software solutions for supply chain, purchasing, and performance management, and Talisma Corporation, a leading provider of a digital customer engagement platform, and served as a Manager at KPMG LLP, a leading global provider of audit, tax, and advisory services. We believe that Mr. Gupta is qualified to serve as a member of our board of directors because of his extensive experience as a global technology leader offering deep technical expertise and strategic business acumen. Nomination of Directors Our Nominating and Corporate Governance Committee has the responsibility relating to assisting the Board in, among other things: (i) identifying and screening individuals qualified to become members of our board of directors, consistent with criteria approved by our board of directors, (ii) recommending to the Board the approval of nominees for director, (iii) developing and recommending to our board of directors a set of corporate governance guidelines, and (iv) overseeing the evaluation of our board of director. When evaluating potential candidates for director, the Nominating Committee considers the entirety of each candidate’s credentials. Qualifications for consideration as a director nominee may vary according to the particular areas of expertise being sought as a complement to the existing composition of our board of directors. However, at a minimum, candidates for director must possess: ● high personal and professional ethics and integrity; ● the ability to exercise sound judgment; ● the ability to make independent analytical inquiries; ● the willingness and ability to devote adequate time and resources to diligently perform board of directors and committee duties; and ● the appropriate and relevant business experience and acumen. 54 In addition to these minimum qualifications, the Nominating Committee also takes into account when considering whether to nominate a potential director candidate the following factors ● whether the person possesses specific industry expertise and familiarity with general issues affecting our business; ● whether the person’s nomination and election would enable the Board to have a member that qualifies as an “audit committee financial expert” as such term is defined by the Securities and Exchange Commission (the “SEC”) in Item 401 of Regulation S-K; ● whether the person would qualify as an “independent director”, as such term is defined in the Nasdaq’s stock market rules; ● the importance of continuity of the existing composition of our board of directors to provide long term stability and experienced oversight; and ● the importance of diversification among our board of directors, in terms of both the individuals involved and their various experiences and areas of expertise. Committees of the Board of Directors Our Board has established an Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. Each of these committees operates pursuant to a formal written charter. The charters for these committees, which have been adopted by our Board, contain a detailed description of the respective committee’s duties and responsibilities and are available on our website at https://algoholdings.com/governance. Below is a description of each committee of the Board. Each of the committees has authority to engage legal counsel or other experts or consultants as it deems appropriate to carry out its responsibilities. The Board has determined that each member of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee meet the independence requirements under the Nasdaq’s current listing standards and each member is free of any relationship that would interfere with his individual exercise of independent judgment. Audit Committee The members of our Audit Committee are Messrs. Judkowitz, Thorn, and Gupta. Mr. Judkowitz serves as the Chairman of our Audit Committee. Each of Messrs. Judkowitz, Thorn, and Gupta is independent under the rules and regulations of the SEC and the listing standards of the Nasdaq applicable to audit committee members. Our board of directors has determined that Mr. Judkowitz qualifies as an audit committee financial expert within the meaning of SEC regulations and meets the financial sophistication requirements of the Nasdaq. 55 Our Audit Committee has the responsibility for, among other things: (i) selecting, retaining and overseeing our independent registered public accounting firm, (ii) obtaining and reviewing a report by independent auditors that describe the accounting firm’s internal quality control, and any materials issues or relationships that may impact the auditors, (iii) reviewing and discussing with the independent auditors standards and responsibilities, strategy, scope and timing of audits, any significant risks, and results, (iv) ensuring the integrity of our financial statements, (v) reviewing and discussing with our independent auditors any other matters required to be discussed by PCAOB Auditing Standard No. 1301, (vi) reviewing, approving and overseeing any transaction between us and any related person and any other potential conflict of interest situations, (vii) overseeing our internal audit department, (viii) reviewing, approving and overseeing related party transactions, and (ix) establishing and overseeing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters. The Audit Committee charter can be found online at https://algoholdings.com/governance. Compensation Committee The members of our Compensation Committee are Messrs. Judkowitz, Thorn and Gupta. Mr. Judkowitz serves as the Chairman of our Compensation Committee. Each of Messrs. Judkowitz, Thorn and Gupta is independent under the rules and regulations of the SEC and the listing standards of the Nasdaq applicable to compensation committee members. Our Compensation Committee has the responsibility for, among other things: (i) reviewing and approving the chief executive officer’s compensation based on an evaluation in light of corporate goals and objectives, (ii) reviewing and recommending to the Board the compensation of all other executive officers, (iii) reviewing and recommending to the Board incentive compensation plans and equity plans, (iv) reviewing and discussing with management compensation information and related information to be included in this report and proxy statements, and (v) reviewing and recommending to the board of directors for approval procedures relating to say on pay votes. The Compensation Committee charter can be found online at https://algoholdings.com/governance. Nominating and Corporate Governance Committee The members of our Nominating and Corporate Governance Committee are Messrs. Judkowitz, Gupta and Thorn. Mr. Thorn serves as the Chairman of our Nominating and Corporate Governance Committee. Each of Messrs. Judkowitz, Gupta and Thorn is independent under the rules and regulations of the SEC and the listing standards of the Nasdaq applicable to nominating committee members. Our Nominating and Corporate Governance Committee has the responsibility relating to assisting the Board in, among other things: (i) identifying and screening individuals qualified to become members of our board of directors, consistent with criteria approved by our board of directors, (ii) recommending to the Board the approval of nominees for director, (iii) developing and recommending to our board of directors a set of corporate governance guidelines, and (iv) overseeing the evaluation of our board of director. The Nominating and Corporate Governance Committee charter can be found online at https://algoholdings.com/governance. 56 Executive Officers Gary Atkinson has served as our Chief Executive Officer since May 2012, as our Secretary since January 2008, and as a member of our board of directors since August 2022. His background appears above under “ – Board of Directors” . Alex Andre has served as our Chief Financial Officer and General Counsel since February 2025. Mr. Andre brings us nearly 25 years of executive management, financial, legal and operational experience. He most recently served as the Chief Financial Officer of Lemnature AquaFarms Corporation, a plant-based ingredients manufacturer for the food, beverage and nutrition markets, from October 2022 to September 2023. Prior to that, Mr. Andre served as the Chief Financial Officer and General Counsel of M.H. Enterprises, Inc., the owner and franchisor of the Teriyaki Madness ® restaurant brand, from March 2021 to September 2022. Before that, he served as the Chief Financial Officer of ARC Group, Inc., a national, multi-brand, multi-unit restaurant holding company, from July 2019 to March 2021, and as its General Counsel from October 2019 to March 2021. Earlier in his career, Mr. Andre served as an accountant for KPMG LLP before serving as a corporate & securities attorney for regional and international law firms. No Family Relationships There is no family relationship between any director and executive officer or among any directors or executive officers. Involvement in Certain Legal Proceedings None of our directors and executive officers have been involved in any of the following events during the past ten years that we consider to be material to an evaluation of their respective abilities or integrity: ● any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; ● any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); ● being subject to any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities; ● being found by a court of competent jurisdiction in a civil action, the SEC or the CFTC to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; ● being subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or ● being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. 57 Code of Ethics We have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. Our Code of Ethics is designed to deter wrongdoing and promote: (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in other public communications that we make; (iii) compliance with applicable governmental laws, rules and regulations; (iv) prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and (v) accountability for adherence to the code. Our Code of Ethics is available on our website at https://algoholdings.com/governance. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires our officers and directors, and persons who beneficially own more than 10% of the outstanding shares of our common stock, to file reports of ownership and changes in ownership concerning their shares of our common stock with the SEC and to furnish us with copies of all Section 16(a) forms they file. We are required to disclose delinquent filings of reports by such persons. Based solely upon a review of Forms 3, Forms 4, and Forms 5 furnished to us pursuant to Rule 16a-3 under the Exchange Act, we believe that all such forms required to be filed pursuant to Section 16(a) of the Exchange Act during the year ended December 31, 2024 were timely filed by the officers, directors, and security holders required to file such forms, with the exception of the following: (i) Harvey Judkowitz failed to file a Form 4 for the receipt of a stock option for 19,532 shares of our common stock and a restricted stock award for 19,532 shares of our common stock on November 20, 2025; (ii) Bernardo Melo failed to file a Form 4 for the receipt of a stock option for 39,063 shares of our common stock and a restricted stock award for 19,532 shares of our common stock on November 20, 2025; (iii) Scott Thorn failed to file a Form 4 for the receipt of a stock option for 39,063 shares of our common stock and a restricted stock award for 19,532 shares of our common stock on November 20, 2025, and (iv) Kapil Gupta failed to file a Form 4 for the receipt of a stock option for 39,063 shares of our common stock and a restricted stock award for 19,532 shares of our common stock on November 20, 2025. Messrs. Judkowitz, Melo and Thorn each subsequently filed a Form 4 to disclose these transactions. 58 Insider Trading Policy and Procedures We have adopted an insider trading policy governing the purchase, sale, and/or other dispositions of our securities by us and our officers, directors and employees that are reasonably designed to promote compliance with insider trading laws, rules and regulations, and all listing standards applicable to us. Each of our executive officers, directors and employees is required to read and sign our insider trading policy. A copy of our insider trading policy is attached hereto as Exhibit 19.1. Under the policy, directors, executive officers, employees and other related persons may not: (i) buy, sell or engage in other transactions in our shares of common stock while they are aware of material non-public information; (ii) buy or sell securities of other companies while aware of material non-public information about those companies that they became aware of as a result of business dealings between us and those companies; or (iii) disclose material non-public information to any unauthorized persons outside of us. The policy restricts trading and other transactions for a limited group of our employees (including executives and directors) to defined window periods that follow our quarterly and annual earnings releases. Additionally, our executive management will also issue notices of black-out trading periods if they are aware of material transactions that they anticipate closing in the near future. Item 11. Executive Compensation. Summary Compensation Table The following table provides information regarding the compensation earned by or paid to our named executive officers during our fiscal years ended December 31, 2025 and 2024. Name and Principal Position Year / Period Salary ($) Bonus ($) Stock Awards ($) (1) Option Awards ($) (1) All Other Compensation ($) (2) Total ($) Gary Atkison 2025 215,000 132,500 -0- -0- 5,800 353,300 Chief Executive Officer 2024 215,000 32,250 -0- -0- 6,285 253,535 Alex Andre (3) 2025 244,000 -0- 66,000 66,000 6,200 382,200 Chief Financial Officer & General Counsel Richard Perez (4) 2025 27,000 44,000 -0- -0- -0- 71,000 Chief Financial Officer 2024 174,596 -0- -0- -0- -0- 174,596 Bernardo Melo (5) 2025 124,000 221,000 -0- -0- 5,800 350,800 Chief Revenue Officer 2024 215,000 57,552 -0- -0- 10,902 283,454 (1) Represents the grant date fair value of the awards calculated in accordance with ASC Topic 718, Compensation – Stock Compensation . A summary of the assumptions made in the valuation of these awards is provided in our consolidated financial statements beginning on page F-1 of this report. (2) Consists of 401(k) matching contributions that we made during the respective years. (3) Mr. Andre was appointed as our Chief Financial Officer and General Counsel on February 13, 2025. (4) Mr. Perez was appointed as our Chief Financial Officer on January 3, 2024 and was terminated as our Chief Financial Officer on February 13, 2025. (5) Mr. Melo was terminated as our Chief Revenue Officer effective August 1, 2025. 59 Outstanding Option and Stock Awards The following table sets forth information with respect to outstanding grants of options to purchase our common stock under stock option awards issued to the named executive officers as of December 31, 2025: Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested (#) Market Value of Shares or Units of Stock That Have Not Vested ($) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) Gary Atkinson 8 -0- N/A 1,440 3/31/26 N/A N/A N/A N/A 17 -0- N/A 2,820 5/3/27 N/A N/A N/A N/A 67 -0- N/A 800 5/24/32 N/A N/A N/A N/A 8 -0- N/A 1,730 8/16/32 N/A N/A N/A N/A Alex Andre 23,818 -0- N/A $ 2.78 2/13/35 23,818 N/A N/A $ 24,056 Lionel Marquis 3 -0- N/A 1,440 3/31/26 N/A N/A N/A N/A 8 -0- N/A 2,820 5/3/27 N/A N/A N/A N/A 50 -0- N/A 800 5/24/32 N/A N/A N/A N/A 5 -0- N/A 1,730 8/16/32 N/A N/A N/A N/A Bernardo Melo 4 -0- N/A 1,020 6/30/25 N/A N/A N/A N/A 17 -0- N/A 1,920 8/10/26 N/A N/A N/A N/A 33 -0- N/A 2,820 5/3/27 N/A N/A N/A N/A 8 -0- N/A 1,320 12/25/31 N/A N/A N/A N/A 50 -0- N/A 800 5/24/32 N/A N/A N/A N/A 5 -0- N/A 1,730 8/16/32 N/A N/A N/A N/A 60 Employment Agreements Effective April 22, 2022, we entered into employment agreements with Gary Atkinson to serve as our Chief Executive Officer and Bernardo Melo to serve as our Chief Revenue Officer. The agreements are for a term of three years with automatic renewals for successive one-year terms, unless either party provides notice of its intention not to extend. As compensation for their service as executives, the executives will each receive: (i) a base salary per annum of $215,000 that automatically increases to $225,000 on the first anniversary of the effective date; (ii) eligibility to earn an annual bonus; and (iii) eligibility to participate in our 2022 Equity Incentive Plan, or any successor plan. In the event the employment of the executives is terminated by us without “Cause” or by the executives for “Good Reason” (as each such defined in the employment agreements), Messrs. Atkinson and Melo will receive severance in a lump sum payment equal to two times the sum of the executive’s base salary and annual bonus for the year in which the termination occurs. The employment agreements also provide for payments to the executive of certain amounts in the event of the executive’s death or disability (as defined in the employment agreements). Mr. Melo was terminated as our Chief Revenue Officer effective August 1, 2025. Effective February 13, 2025, we entered into an employment agreement with Alex Andre to serve as our Chief Financial Officer and General Counsel. The agreement is for a term of three years with automatic renewals for successive one-year terms, unless either party provides at least 90 days’ notice of its intention not to extend. Under the terms of the agreement, we agreed to pay Mr. Andre an annual base salary of $275,000 which automatically increases to $300,000 on the six-month anniversary of the effective date. Mr. Andre is eligible to receive an annual bonus of up to 30% of his annual base salary. Mr. Andre received a non-qualified stock option to purchase 23,818 shares of our common stock and a restricted stock award for 23,818 shares of our common stock on February 13, 2025. The option has a ten-year term, subject to any earlier termination following cessation of Mr. Andre’s service with us, and an exercise price per share equal to the closing price of our common stock as reported by the Nasdaq on February 13, 2025. The restricted stock award and option vest over four years as follows: (a) 25% of the shares underlying the restricted stock award and option shall vest on the first anniversary of the grant date; and (b) six and one-quarter percent (6.25%) of the shares underlying the restricted stock award and option shall vest each quarter thereafter, subject to Mr. Andre’s continued service with us through each applicable vesting date. On February 23, 2026, we entered into an amended and restated employment agreement with Gary Atkinson to continue serving as our Chief Executive Officer. The agreement supersedes and replaces the employment agreement that we entered into with Mr. Atkinson on April 22, 2022. The agreement is for a term of three years with automatic renewals for successive one-year terms, unless either party provides at least 90 days’ notice of its intention not to extend. Under the terms of the agreement, we agreed to pay Mr. Atkinson an annual a base salary of $360,000 per year. Mr. Atkinson has the right to earn an annual bonus of up to 50% of the base salary, of which amount 50% will be subject to his continued employment with us and the remaining 50% will be subject to the satisfaction of certain performance objectives. Mr. Atkinson also has the right to receive a bonus if, and each time, a change of control occurs during the term of his employment in a lump sum payment equal to his base salary and annual bonus for the year in which the change of control occurs. 61 Pursuant to the terms of the Agreement, on February 23, 2026, we granted Mr. Atkinson a stock option to purchase 740,597 shares of our common stock under the 2022 Plan. The stock option has an exercise price per share of $1.84 and vests in equal quarterly installments over a period of four years commencing on February 23, 2026. Executive Bonus Plan On April 22, 2022, our Board of Directors approved a bonus plan for our executive officers. Under the plan, our executive officers are eligible to receive a cash bonus, stock options, and stock grants based on our earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the applicable fiscal year. The value of the cash bonus and number of shares of stock underlying stock options and stock grants increases as the ratio of EBITDA to net sales increases. Director Compensation The following table sets forth all compensation earned or paid to our directors who served during all or a portion of the year ended December 31, 2025. Name Fees Earned or Paid in Cash ($) Stock Awards ($) (1) Option Awards ($) (1) Total ($) Harvey Judkowitz 34,250 21,000 25,000 80,250 Gary Atkinson -0- -0- -0- 0 Ajesh Kapoor (2) -0- -0- -0- 0 Bernardo Melo -0- 42,000 25,000 67,000 Scott Thorn (3) 9,750 42,000 25,000 76,750 Kapil Gupta (3) 9,250 42,000 25,000 76,250 Mathieu Peloquin (3) 19,000 -0- -0- 19,000 Jay Foreman (4) 20,500 -0- -0- 20,500 Joe Kling (5) 19,500 -0- -0- 19,500 (1) Represents the grant date fair value of the awards calculated in accordance with ASC Topic 718, Compensation – Stock Compensation . A summary of the assumptions made in the valuation of these awards is provided in our consolidated financial statements beginning on page F-1 of this report. (2) Mr. Kapoor was appointed to our board of directors on May 19, 2025. (3) Messrs. Thorn and Gupta were appointed to our board of directors on October 6, 2025, and Mr. Peloquin resigned from our board of directors on October 6, 2025. (4) Mr. Foreman resigned from our board of directors on November 14, 2025. (5) Mr. Kling resigned from our board of directors on August 21, 2025. 62 Prior to May 28, 2025, we compensated the non-employee members of our board of directors as follows: ● An annual cash payment of $15,000 for each completed full year of service or prorated for a partial year. ● An annual stock grant of stock equivalent in value to $10,000 for each completed full year of service or prorated for a partial year. The stock price at grant will be determined at the closing price on the day of the annual stockholder meeting. ● A $1,000 fee for each board meeting and annual meeting attended. Committee meetings and telephone board meetings will be compensated for with a $500 fee. ● All expenses are reimbursed for attending board, committee and annual meetings or when their presence at a location away from home is requested. On May 28, 2025, our board of directors approved a new director compensation policy pursuant to which we compensate the non-employee members of our board of directors as follows: ● An annual cash retainer of $25,000, payable in quarterly installments on the first day of each quarter in advance of service for such quarter. ● An annual grant of a restricted stock award with a value at the time of issuance of $25,000. ● An annual grant of a stock option with a value at the time of issuance of $25,000. ● An annual cash retainer of $5,000 for each committee of the board of directors upon which the board member serves, payable in quarterly installments on the first day of each quarter in advance of service for such quarter. ● An initial grant of a stock option with a value at the time of issuance of $25,000 for each individual who becomes a non-employee director due to either: (i) the initial appointment or election to the board of directors, or (ii) a change in status that the board of directors determines results in a previously ineligible director qualifying as a non-employee director. ● All expenses are reimbursed for attending board, committee and annual meetings or when their presence at a location away from home is requested. On February 23, 2026, our board of directors amended the director compensation policy to provide that, with respect to the annual grants of a restricted stock award and a stock option each having a value at the time of issuance of $25,000, non-employee directors would instead be given an annual grant of equity having a value at the time of issuance of $50,000 and that they would have the right to choose what amount, if any, they would like to receive in the form of a restricted stock award and/or a stock option. 63 401(k) Plan Effective January 1, 2001, we adopted a voluntary 401(k) plan. All employees with at least 90 days of service are eligible to participate in our 401(k) plan. We make a matching contribution of 100% of the first three percent of salary deferral contributions, plus 50% of the next two percent of salary deferral contributions, for each payroll period. The matching contributions that we make are vested in full immediately. Clawback Policy Our Board has adopted a clawback policy relating to recovery of erroneously awarded compensation that complies with the Nasdaq clawback rules which are required by SEC Rule 10D-1. Under this policy, in the event that we are required to prepare an accounting restatement of our financial statements due to our material noncompliance with any financial reporting requirement under the securities laws, the policy requires that the administrator of the policy, to the extent legally permitted and pursuant to the terms of the policy, recover from current and former Section 16 officers any incentive-based compensation, as defined in Nasdaq’s clawback rules, received by such officers that exceeds the amount of incentive-based compensation that otherwise would have been received had such incentive based compensation been determined according to the applicable accounting restatement. A copy of our clawback policy is attached hereto as Exhibit 97. Policies and Practices related to the Grant of Certain Equity Awards Close in Time to the Release of Material Nonpublic Information We have a strict policy of not granting securities to our executive officers, directors and employees when material nonpublic information is known or a material transaction is anticipated to occur. The timing of equity award grants is determined with consideration to a variety of factors, including but not limited to, the achievement of pre-established performance targets, market conditions and internal milestones. We do not follow a predetermined schedule for the granting of equity awards. Instead, each grant is considered on a case-by-case basis to align with our strategic objectives and to ensure the competitiveness of our compensation packages. In determining the timing and terms of an equity award, our board of directors and compensation committee consider material nonpublic information to ensure that such grants are made in compliance with applicable laws and regulations. Procedures utilized by our board of directors and compensation committee to prevent the improper use of material nonpublic information in connection with the granting of equity awards include consultation with legal counsel and, where appropriate, the delay of the grant of applicable equity awards until the public disclosure of such material nonpublic information has been completed. We are committed to maintaining transparency in our executive compensation practices and to making equity awards in a manner that is not influenced by the timing of the disclosure of material nonpublic information for the purpose of affecting the value of executive compensation. We regularly review our policies and practices related to equity awards to ensure that they meet the evolving standards of corporate governance and continue to serve the best interests of us and our stockholders. 64 During the year ended December 31, 2025, no securities were granted to our named executive officers within four business days prior to, or one business day following, the filing or furnishing of a periodic or current report by us that disclosed material nonpublic information. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table and the notes thereto set forth, as of March 27, 2026, certain information with respect to the beneficial ownership of: (i) each of our named executive officers, (ii) each of our directors, (iii) each of our named executive officers and directors as a group, and (iv) each person or group that is known to us to be the beneficial owner of more than five percent of our common stock. This table is based upon information supplied by our officers, directors and principal stockholders and Schedules 13D and 13G filed with the SEC. Where information regarding stockholders is based on Schedules 13D and 13G, the number of shares owned is as of the date for which information was provided in such schedules. The beneficial owners and number of securities beneficially owned have been determined in accordance with Rule 13d-3 under the Exchange Act and, in accordance therewith, includes all shares of our common stock that may be acquired by such beneficial owners within 60 days of March 27, 2026 upon the exercise or conversion of any options, warrants or other convertible securities. Unless otherwise indicated and subject to community property laws where applicable, we believe that each person or entity named below has sole voting and investment power with respect to the shares of common stock indicated as beneficially owned by that person or entity, subject to the matters set forth in the footnotes to the table below, and has an address of c/o Algorhythm Holdings, Inc., 6301 NW 5 th Way, Suite 2900, Fort Lauderdale, FL 33309. Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership (1) Percentage of Class Gary Atkinson (2) 46,447 * Alex Andre (3) 45,873 * Bernardo Melo (4) 29,635 * Harvey Judkowitz (5) 31,156 * Ajesh Kapoor 128,762 * Scott Thorn (6) 29,298 * Kapil Gupta (7) 29,298 * All officers and directors as a group (7 persons) 340,469 2.3 % * Less than one percent. (1) This table has been prepared based on 14,651,665 shares of our common stock outstanding on March 27, 2026. (2) Includes 46,388 shares of common stock underlying stock options issued under the 2022 Plan. 65 (3) Includes a restricted stock award for 23,818 shares of common stock for which Mr. Andre holds the voting rights and 22,055 shares of common stock underlying stock options, all of which were issued under the 2022 Plan. (4) Includes a restricted stock award for 9,766 shares of common stock for which Mr. Melo holds the voting rights and 19,768 shares of common stock underlying stock options, all of which were issued under the 2022 Plan. (5) Includes a restricted stock award for 9,766 shares of common stock for which Mr. Judkowitz holds the voting rights and 9,795 shares of common stock underlying stock options, all of which were issued under the 2022 Plan. (6) Includes a restricted stock award for 9,766 shares of common stock for which Mr. Thorn holds the voting rights and 19,532 shares of common stock underlying stock options, all of which were issued under the 2022 Plan. (7) Includes a restricted stock award for 9,766 shares of common stock for which Mr. Gupta holds the voting rights and 19,532 shares of common stock underlying stock options, all of which were issued under the 2022 Plan. 2022 Equity Incentive Plan On April 12, 2022, our board of directors approved The Singing Machine Company, Inc. 2022 Equity Incentive Plan. The 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 our employees, officers, directors, consultants, agents, advisors, and independent contractors. The number of shares of common stock that was initially available for issuance under the plan was 1,167 shares of common stock. On the first day of each of our fiscal years thereafter, this number is increased by the lesser of: (i) five percent of the number of shares of our common stock that were outstanding on the last day of our immediately preceding fiscal year, calculated on a fully diluted, (ii) 167 shares, and (iii) such lesser number as our board of directors may determine. Any shares of common stock underlying awards that lapse, terminate, expire prior to exercise, are canceled or are forfeited are added to the number of shares of commons stock available for issuance under the plan. On November 20, 2025, the plan was amended to provide that the number of shares of common stock available for issuance under the plan is 5,000,000 and that, commencing January 1, 2025, on the first day of each of our fiscal years thereafter, this number will be increased by the lesser of: (i) 15% of the outstanding common stock on a fully diluted basis as of the end of our immediately preceding fiscal year, or (ii) an amount determined by the board of directors, provided that any shares from any such increases in previous years that are not actually issued shall continue to be available for issuance under the plan. Accordingly, as of December 31, 2025, there were 5,000,000 shares of common stock authorized for issuance under the plan. Of this amount, awards representing 283,666 shares of common stock were outstanding as of December 31, 2025 and 4,716,334 shares remained available for issuance as of December 31, 2025. On January 1, 2026, the number of shares available for issuance under the plan increased to 5,750,000 in accordance with the terms of the plan. 66 The following table summarizes our equity compensation plan information as of December 31, 2025. Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted- average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by security holders: 1,319,229 $ 10 4,716,334 Equity compensation plans not approved by security holders: N/A N/A N/A Total 1,319,229 $ 10 4,716,334 Item 13. Certain Relationships and Related Transactions, and Director Independence. A transaction may be a related person transaction if any of our directors, executive officers, owners of more than five percent of our common stock, or their immediate family were involved in a transaction in which we were or are to be a participant, and the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at the end of our last two completed fiscal years. We engaged in the following related persons transactions since the beginning of our last fiscal year. Regalia Ventures Stock Transactions On November 20, 2023, we entered into a stock purchase agreement with Regalia Ventures pursuant to which we sold 5,495 shares of our common stock to Regalia Ventures at a purchase price of $182 per share. Net proceeds from the transaction were approximately $950,000, net of transaction fees of approximately $50,000. On November 1, 2024, we entered into a stock repurchase agreement with Regalia Ventures pursuant to which we agreed to repurchase the 5,495 shares for $472,527. On February 18, 2025, the date of the closing of the transaction, we issued a promissory note to Regalia Ventures in the amount of $472,527. On February 27, 2025, we paid off the note in full. Regalia Ventures is owned and controlled by Jay B. Foreman, who served as a member of our board of directors until November 14, 2025 . Stingray Group Stock Transactions On November 20, 2023, we entered into a stock purchase agreement with Stingray Group pursuant to which we sold 5,495 shares of our common stock to Stingray Group at a purchase price of $182 per share. Net proceeds from the transaction were approximately $950,000, net of transaction fees of approximately $50,000. On December 3, 2024, we entered into a stock repurchase agreement with Stingray Group pursuant to which we agreed to repurchase the 5,495 shares for $285,714. We agreed to issue a promissory note to Stingray Group in the principal amount of the purchase price of the shares at the closing of the transaction. On February 18, 2025, the date of the closing of the transaction, we issued a promissory note to Stingray Group in the amount of $285,714. On April 3, 2025, we paid off the note in full. Mathieu Peloquin is the Senior Vice-President, Marketing and Communications of Stingray Group and served as a member of our board of directors until October 6, 2025 . 67 Stingray Holdings Music Subscription Agreement We have a music subscription sharing agreement with Stingray Group under which we generated music subscription revenue of $64,000 and $780,000 during the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, we had $0 and $212,000, respectively, due from Stingray Group for music subscription reimbursement. Mathieu Peloquin is the Senior Vice-President, Marketing and Communications of Stingray Group and served as a member of our board of directors until October 6, 2025 . This revenue was included in net loss from discontinued operations on our consolidated statements of operations for the years ended December 31, 2025 and 2024, and the accounts receivable was included in current assets of discontinued operations in our consolidated balance sheets as of December 31, 2024. SMCB VIE Analysis We determined that SMCB, which was a subsidiary of SemiCab, Inc. until SemiCab Holdings acquired it on May 2, 2025, was a VIE as we provided financial support to SMCB. While not contractually obligated, SMCB relied on our reimbursement of certain costs under a intercompany services agreement (“MSA”) whereby SMCB agreed to provide IT software development services to us. In exchange, under the MSA, we granted intellectual property rights to SMCB to use the software platform in India. Compensation for services is invoiced and paid on a monthly or quarterly basis as agreed by both parties, with rates subject to periodic review and revision. The agreement is for a term of two years ending on April 1, 2025 and automatically renews for additional 12-month periods unless prior notice is given by the terminating party. The agreement automatically renewed for an additional 12-month period on April 1, 2025. As a result of this relationship and the financial support provided by us under the loan agreement described below, SMCB has been determined to be a VIE prior to May 2, 2025. We further determined that were are not the primary beneficiary of SMCB because we did not have the power to direct or control SMCB’s significant activities related to its business prior to May 2, 2025. Accordingly, we have not consolidated SMCB’s results of operations and financial position prior to May 2, 2025 in our consolidated financial statements. Pursuant to the terms of the asset purchase agreement that we entered into on June 11, 2024, we entered into an option agreement that granted SemiCab Holdings the right to acquire all of the issued and outstanding equity securities of SMCB for 1,605 shares of our common stock. We did not exercise this right and the option agreement expired on August 31, 2024. 68 Loan Agreement We are a party to a loan agreement with SMCB dated March 22, 2024. Under the loan agreement, we agreed to loan up to $2,500,000 to SMCB. The loans are anticipated to be made in tranches. Disbursements of any tranches are fully at our discretion. Each tranche has a repayment period of five years. The loans can be repaid at any time prior to the five- year maturity date without penalty. Interest on the loans accrues at a rate of six percent per year and is payable quarterly. At December 31, 2024, a total of $1,140,000 was outstanding under the loan agreement. During the period beginning January 1, 2025 and ending May 2, 2025, the date we acquired 99.99% of the equity shares of SMCB, we made advances to SMCB in the amount of $1,172,000. During the same period, SMCB charged $304,000 for services to us that were performed under the MSA, which charges offset amounts due under the loan with SMCB. As a result, as of May 2, 2025, a total of $2,008,000 of loans were outstanding under the loan agreement, and a total of $492,000 remained available for future borrowings under the loan agreement as of May 2, 2025. As of May 2, 2025, SMCB had not made any interest payments due under the loan agreement. As a result, the loans were in default as of May 2, 2025. On May 2, 2025, the loan payable of $2,008,000 of SMCB and our loan receivable of $2,008,000 were eliminated in consolidation. As a result, no such loans payable and loans receivable were outstanding on our condensed consolidated balance sheet at June 30, 2025. Also on May 2, 2025, revenue generated by SMCB for services performed by SMCB under the MSA of $304,000 and expenses for us for services performed by SMCB under the MSA of $304,000 during the period commencing January 1, 2025 and ending May 2, 2025 were eliminated in consolidation on May 2, 2025. As a result, no such revenue and expenses were reflected on our consolidated statements of operations for the years ended December 31, 2025 and 2024. Sale of Singing Machine to Stingray USA On August 1, 2025, we entered into an asset purchase agreement with Stingray USA, a related party and subsidiary of the Stingray Group, 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. Mathieu Peloquin is the Senior Vice-President, Marketing and Communications of Stingray Group and served as a member of our board of directors until October 6, 2025 . The gain on sale that we recognized in connection with the completion of this transaction was included in net gain (loss) from discontinued operations on our consolidated statements of operations for the years ended December 31, 2025 and 2024. 69 Review, Approval or Ratification of Transactions With Related Persons We believe that the terms of all of our transactions with related parties are commercially reasonable and no less favorable to us than we could have obtained from an unaffiliated third party. Our audit committee is charged with the responsibility to review, approve and oversee any transaction between us and any related parties and to develop policies and procedures for the audit committee’s approval of related-party transactions. While we do not maintain a formal written policy with respect to related-party transactions, our audit committee and board of directors routinely review potential transactions that we have identified as related parties prior to the consummation of the transaction to ensure that the transaction is commercially reasonable and reflects market terms. Each transaction is reviewed to determine that a related party transaction is entered into by us with the related party pursuant to normal competitive negotiation and on terms no more favorable than with an unrelated third party. We also generally require, unless prohibited by law, that all related parties recuse themselves from negotiating and voting on behalf of us in connection with proposed transactions to which they would be a party. Item 14. Principal Accountant Fees and Services. Fees and Services M&K CPAs PLLC has served as our independent registered public accounting firm since October 6, 2025. Berkowitz Pollack Brant, Advisors + CPAs served as our independent registered public accounting firm for the period commencing June 2, 2025, and ending October 6, 2025. CBIZ CPAs P.C. served as our independent registered public accounting firm for the period commencing April 25, 2025, and ending June 2, 2025. Marcum LLP served as our independent registered public accounting firm for the year ended December 31, 2024 and continuing through April 25, 2025. We paid audit fees of $32,000 to M&K CPAS PLLC for services performed during the year ended December 31, 2025. We paid audit fees of $25,000 to Berkowitz Pollack Brant, Advisors + CPAs for services performed during the year ended December 31, 2025. We paid audit fees of $37,000 to CBIZ CPAs P.C. for services performed during the year ended December 31, 2025. We paid audit fees of $50,000 and $483,000 to Marcum LLP for services performed during the years ended December 31, 2025 and 2024, respectively. Fees 2025 2024 Audit fees $ 144,000 $ 483,000 Audit-related fees -0- -0- Tax fees -0- -0- All other fees -0- -0- Total fees $ 144,000 $ 483,000 Audit fees consist of fees billed for professional services rendered by our independent registered public accounting firm for the audit of our annual consolidated financial statements, the review of our interim consolidated financial statements included in our quarterly reports, the review of our registration statements and services that are normally provided by our principal accountant in connection with statutory and regulatory filings or engagements. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors Our Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. Our auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the auditors in accordance with this pre-approval and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. 70 PART IV Item 15. Exhibits, Financial Statement Schedules. Financial Statements The following consolidated financial statements and reports of our independent registered public accounting firms are filed as part of this report and incorporated by reference in Item 8. Financial Statements and Supplementary Data of this report: ● Report of Independent Registered Public Accounting Firm (PCAOB ID: 2738). ● Report of Independent Registered Public Accounting Firm (PCAOB ID: 688). ● Consolidated Balance Sheets at December 31, 2025 and 2024. ● Consolidated Statements of Operations for the Years Ended December 31, 2025 and 2024. ● Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2025 and 2024. ● Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024. ● Notes to Consolidated Financial Statements. Financial Statement Schedules All financial statement schedules have been omitted because the required information is either not applicable or has been presented in the consolidated financial statements. 71 Exhibits The documents set forth below are filed as exhibits to this report. Where so indicated, exhibits that were previously filed with the SEC are incorporated by reference herein. Exhibit No. Description 2.1 Asset Purchase Agreement, dated June 11, 2024, by and among Algorhythm Holdings, Inc., SemiCab, Inc. and SemiCab Holdings, LLC (incorporated by reference to Exhibit 2.1 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on June 12, 2024). 2.2 Amendment No. 1 to Asset Purchase Agreement dated July 1, 2024, by and among Algorhythm Holdings, Inc., SemiCab, Inc. and SemiCab Holdings LLC (incorporated by reference to Exhibit 2.2 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on July 5, 2024). 3.1 Certificate of Incorporation of Algorhythm Holdings, Inc. filed with the Delaware Secretary of State on February 15, 1994 and amendments through April 14, 1999 (incorporated by reference to Exhibit 3.1 in Algorhythm Holdings, Inc.’s Registration Statement on Form SB-2 filed with the SEC on March 7, 2000). 3.2 Certificate of Amendment to Certificate of Incorporation of Algorhythm Holdings, Inc. filed with the Delaware Secretary of State on September 29, 2000 (incorporated by reference to Exhibit 3.1 in Algorhythm Holdings, Inc.’s Quarterly Report on Form 10-QSB for the period ended September 30, 1999 filed with the SEC on November 14, 2000). 3.3 Corrected Certificate of Amendment to Certificate of Incorporation of Algorhythm Holdings, Inc. filed with the Delaware Secretary of State on March 27, 2001 (incorporated by reference to Exhibit 3.13 in Algorhythm Holdings, Inc.’s Registration Statement on Form SB-2 filed with the SEC on April 11, 2001). 3.4 Corrected Certificate of Amendment to Certificate of Incorporation of Algorhythm Holdings, Inc. filed with the Delaware Secretary of State on April 4, 2001 (incorporated by referenced to Exhibit 3.12 in Algorhythm Holdings, Inc.’s Registration Statement on Form SB-2 filed with the SEC on April 11, 2001). 3.5 Certificate of Correction to Corrected Certificate of Amendment to Certificate of Incorporation of Algorhythm Holdings, Inc. filed with the Delaware Secretary of State on April 20, 2001 (incorporated by reference to Algorhythm Holdings, Inc.’s Transition Report on Form 10-KT filed with the SEC on July 14, 2022). 3.6 Certificate of Amendment to the Certificate of Incorporation of Algorhythm Holdings, Inc. filed with the Delaware Secretary of State on January 27, 2006 (incorporated by reference to Algorhythm Holdings, Inc.’s Transition Report on Form 10-KT filed with the SEC on July 14, 2022). 3.7 Certificate for Renewal and Revival of Charter of Algorhythm Holdings, Inc. filed with Delaware Secretary of State on September 25, 2012 (incorporated by reference to Algorhythm Holdings, Inc.’s Transition Report on Form 10-KT filed with the SEC on July 14, 2022). 3.8 Certificate of Amendment of Certificate of Incorporation of Algorhythm Holdings, Inc. filed with the Delaware Secretary of State on May 19, 2022 (incorporated by reference to Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on May 25, 2022). 3.9 Amended By-Laws of Algorhythm Holdings, Inc. (incorporated by reference to Exhibit 3.14 in Algorhythm Holdings, Inc.’s Transition Report on Form 10-KTSB for the year ended March 31, 2001 filed with the SEC on June 29, 2001). 72 3.10 Certificate of Amendment of Certificate of Incorporation of Algorhythm Holdings, Inc. dated August 27, 2024 (incorporated by reference to Exhibit 3.1 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on September 6, 2024). 3.11 Amendment No. 1 to Amended By-laws of Algorhythm Holdings, Inc., effective October 18, 2024 (incorporated by reference to Exhibit 3.1 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on October 21, 2024). 3.12 Certificate of Amendment to the Certificate of Incorporation of Algorhythm Holdings, Inc. filed with the Delaware Secretary of State on January 14, 2025 (incorporated by reference to Exhibit 3.1 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on January 17, 2025). 4.1 Description of Securities (incorporated by reference to Algorhythm Holdings, Inc.’s Transition Report on Form 10-KT filed with the SEC on July 14, 2022). 10.1 Lease, dated July 31, 2011, by and between Algorhythm Holdings, Inc. and Lakeside IV, LLC (incorporated by reference to Algorhythm Holdings, Inc.’s Current Report on Form 10-KT filed with the SEC on June 29, 2011). 10.2+ The Singing Machine 2022 Equity Incentive Plan (incorporated by reference to Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on April 18, 2022). 10.3 Form of Indemnification Agreement to be entered into with Algorhythm Holdings, Inc. and each of its officers and directors (incorporated by reference to Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on May 27, 2022). 10.4 Loan Agreement, dated March 28, 2024, by and between Algorhythm Holdings, Inc. and Oxford Commercial Finance (incorporated by reference to Exhibit 10.1 in the Company’s Current Report on Form 8-K filed with the SEC on April 3, 2024). 10.5 Revolving Credit Note, dated March 28, 2024, issued by Algorhythm Holdings, Inc. in favor of Oxford Commercial Finance (incorporated by reference to Exhibit 10.2 in the Company’s Current Report on Form 8-K filed with the SEC on April 3, 2024). 10.6 Security Agreement, dated March 28, 2024, by and between Algorhythm Holdings, Inc. and Oxford Commercial Finance (incorporated by reference to Exhibit 10.3 in the Company’s Current Report on Form 8-K filed with the SEC on April 3, 2024). 10.7 Operating Agreement, dated July 3, 2024, by and among Algorhythm Holdings, Inc., SemiCab Holdings, LLC and SemiCab, Inc. (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on June 12, 2024). 10.8 At-The-Market Issuance Sales Agreement, dated June 26, 2024, by and between Algorhythm Holdings, Inc. and Ascendiant Capital Markets, LLC (incorporated by reference to Exhibit 1.1 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on June 27, 2024). 10.9 Amendment to At-The-Market Issuance Sales Agreement, dated July 8, 2024, by and between Algorhythm Holdings, Inc. and Ascendiant Capital Markets, LLC (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on July 9, 2024). 10.10 Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 in the Company’s Form 8-K filed with the SEC on October 24, 2024). 10.11 Form of Original Issue Discount Senior Secured Note (incorporated by reference to Exhibit 10.2 in the Company’s Form 8-K filed with the SEC on October 24, 2024). 73 10.12 Form of Guarantee (incorporated by reference to Exhibit 10.3 in the Company’s Form 8-K filed with the SEC on October 24, 2024). 10.13 Stock Repurchase Agreement, dated November 1, 2024, by and between Algorhythm Holdings, Inc. and Regalia Ventures, LLC (incorporated by reference to Exhibit 10.1 in the Company’s Form 8-K filed with the SEC on November 7, 2024). 10.14 Stock Repurchase Agreement, dated December 3, 2024, by and between Algorhythm Holdings, Inc. and Stingray Group, Inc. (incorporated by reference to Exhibit 10.3 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on December 6, 2024). 10.15 Form of Series A Warrant, dated December 4, 2024 (incorporated by reference to Exhibit 4.1 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on December 6, 2024). 10.16 Form of Series B Warrant, dated December 4, 2024 (incorporated by reference to Exhibit 4.2 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on December 6, 2024). 10.17 Form of Pre-Funded Warrant, dated December 4, 2024 (incorporated by reference to Exhibit 4.3 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on December 6, 2024). 10.18 Form of Securities Purchase Agreement, dated December 4, 2024 (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on December 6, 2024). 10.19 Placement Agency Agreement, dated December 4, 2024, between Algorhythm Holdings, Inc. and Univest Securities, LLC (incorporated by reference to Exhibit 10.2 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on December 6, 2024). 10.20 Form of Securities Purchase Agreement dated December 17, 2024 (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on December 18, 2024). 10.21 Placement Agency Agreement, dated December 17, 2024, between Algorhythm Holdings, Inc. and Univest Securities, LLC (incorporated by reference to Exhibit 10.2 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on December 18, 2024). 10.22+ Employment Agreement, dated February 12, 2025, between Algorhythm Holdings, Inc. and Alex Andre (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on February 18, 2025). 10.23 Stock Option, dated February 13, 2025, issued by Algorhythm Holdings, Inc. to Alex Andre (incorporated by reference to Exhibit 10.2 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on February 18, 2025). 10.24 Restricted Stock Award, dated February 13, 2025, issued by Algorhythm Holdings, Inc. to Alex Andre (incorporated by reference to Exhibit 10.3 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on February 18, 2025). 10.25 Equity Purchase Agreement, dated May 2, 2025, by and among Algorhythm Holdings, Inc., SemiCab Holdings, LLC and SemiCab, Inc. (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on May 8, 2025). 10.26 Promissory Note, dated May 2, 2025, issued by Algorhythm Holdings, Inc. in favor of SemiCab, Inc. (incorporated by reference to Exhibit 10.2 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on May 8, 2025). 10.27 Amended and Restated Limited Liability Company Agreement of SemiCab Holdings, LLC, dated May 2, 2025, by and among Algorhythm Holdings, Inc., SemiCab Holdings, LLC, Ajesh Kapoor and Vivek Sehgal (incorporated by reference to Exhibit 10.3 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on May 8, 2025). 10.28‡ Asset Purchase Agreement, dated August 1, 2025, by and among Algorhythm Holdings, Inc., The Singing Machine Company, Inc. and Stingray Music USA, Inc. (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on August 7, 2025). 10.29 Securities Purchase Agreement, dated August 21, 2025, by and among Algorhythm Holdings, Inc. and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on August 27, 2025). 74 10.30 Secured Pre-Paid Purchase #1, dated August 21, 2025, by and among Algorhythm Holdings, Inc. and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.2 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on August 27, 2025). 10.31 Security Agreement, dated August 21, 2025, by and among Algorhythm Holdings, Inc. and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.3 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on August 27, 2025). 10.32 Guaranty, dated August 21, 2025, by and among SemiCab Holdings, LLC, SMCB Solutions Private Limited, and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.4 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on August 27, 2025). 10.33 Secured Pre-Paid Purchase #2, dated November 13, 2025, by and between Algorhythm Holdings, Inc. and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.6 in Algorhythm Holdings, Inc.’s Quarterly Report on Form 10-Q filed with the SEC on November 19, 2025). 10.34 Deposit Account Control Agreement, dated November 13, 2025, by and among RIME Holdings, LLC, Lakeside Bank and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.7 in Algorhythm Holdings, Inc.’s Quarterly Report on Form 10-Q filed with the SEC on November 19, 2025). 10.35 Guaranty, dated November 13, 2025, issued by RIME Holdings, LLC for the benefit of Streeterville Capital, LLC (incorporated by reference to Exhibit 10.8 in Algorhythm Holdings, Inc.’s Quarterly Report on Form 10-Q filed with the SEC on November 19, 2025). 10.36+ Amendment to the Algorhythm Holdings, Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on November 26, 2025). 10.37 Secured Pre-Paid Purchase #3, dated December 19, 2025, by and among Algorhythm Holdings, Inc. and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.2 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on December 29, 2025). 10.38 Secured Pre-Paid Purchase #4, dated February 17, 2026, by and among Algorhythm Holdings, Inc. and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.2 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on February 23, 2026). 10.39 Guaranty, dated February 17, 2026, issued by RIME Holdings, LLC for the benefit of Streeterville Capital, LLC (incorporated by reference to Exhibit 10.4 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on February 23, 2026). 10.40+ Amended and Restated Employment Agreement, dated February 23, 2026, by and between Algorhythm Holdings, Inc. and Gary Atkinson (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on February 27, 2026). 10.41 Stock Option, dated February 23, 2026, by and between Algorhythm Holdings, Inc. and Gary Atkinson (incorporated by reference to Exhibit 10.2 in Algorhythm Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on February 27, 2026). 19.1* Algorhythm Holdings, Inc. Insider Trading Policy 21.1* List of subsidiaries of Algorhythm Holdings, Inc. 23.1* Consent of M&K CPAS PLLC 23.2* Consent of M&K CPAS PLLC 23.3* Consent of M&K CPAS PLLC 23.4* Consent of Marcum LLP 31.1* Certification of Gary Atkinson, Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. 31.2* Certification of Alex Andre, Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. 32.1** Certifying Statement of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act. 32.2** Certifying Statement of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. 97 Algorhythm Holdings, Inc. Clawback Policy (incorporated by reference to Exhibit 97 in Algorhythm Holdings, Inc.’s Transition Report on Form 10-KT filed with the SEC on April 15, 2024). 101.INS Inline XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * Filed herewith ** Furnished herewith + Compensatory plan or arrangement ‡ The schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request. Item 16. Form 10-K Summary. None. 75 SIGNATURES In accordance with the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, Algorhythm Holdings, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALGORHYTHM HOLDINGS, INC. Date: April 1, 2026 By: /s/ Gary Atkinson Gary Atkinson Chief Executive Officer (Principal Executive Officer) Date: April 1, 2026 By: /s/ Alex Andre Alex Andre Chief Financial Officer & General Counsel (Principal Financial and Accounting Officer) In accordance with the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Algorhythm Holdings, Inc. and in the capacities and on the dates indicated. Signature Title Date /s/ Gary Atkinson Chief Executive Officer and Director April 1, 2026 Gary Atkinson (Principal Executive Officer) /s/ Alex Andre Chief Financial Officer and General Counsel April 1, 2026 Alex Andre (Principal Financial Officer) /s/ Harvey Judkowitz Director April 1, 2026 Harvey Judkowitz /s/ Bernardo Melo Director April 1, 2026 Bernardo Melo /s/ Ajesh Kapoor Director April 1, 2026 Ajesh Kapoor /s/ Scott Thorn Director April 1, 2026 Scott Thorn /s/ Kapil Gupta Director April 1, 2026 Kapil Gupta 76 Algorhythm Holdings, Inc. Index to Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 2738 ) F-2 Report of Independent Registered Public Accounting Firm (PCAOB ID: 688 ) F-3 Consolidated Balance Sheets at December 31, 2025 and 2024 F-4 Consolidated Statements of Operations for the Years Ended December 31, 2025 and 2024 F-5 Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2025 and 2024 F-6 Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2025 and 2024 F-7 Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 F-8 Notes to Consolidated Financial Statements F-9 F- 1 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Algorhythm Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Algorhythm Holdings, Inc. (the Company) as of December 31, 2025, and the related consolidated statements of operations, comprehensive loss, shareholders’ deficit, and cash flows for the year ended December 31, 2025 and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. The consolidated financial statements of Algorhythm Holdings, Inc. as of December 31, 2024 were audited by other auditors whose report dated April 15, 2025 expressed an unqualified opinion on those statements. We also have audited the adjustments to the 2024 consolidated financial statements to retrospectively apply the discontinued operations reclassifications related to the disposition of the Singing Machine business, as described in Notes 19, and the retrospective adjustments to share and per share data as a result of the reverse stock split, as described in Note 11 as well as the change to the segment information described in Note 15 as a result of the discontinued operations. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2024 consolidated financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2024 consolidated financial statements taken as a whole. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company suffered a net loss from operations and has an accumulated deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are discussed in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated, or required to be communicated, to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Going Concern Due to the net loss for the year, the Company evaluated the need for a going concern. Auditing management’s evaluation of a going concern can be a significant judgement given the fact that the Company uses management estimates on future revenues and expenses which are not able to be substantiated. As discussed in Note 3, the Company suffered a net loss from operations and has an accumulated deficit for the year ended December 31, 2025. To evaluate the appropriateness of the going concern, we examined and evaluated the financial information along with management’s plans to mitigate the going concern and management’s disclosure on going concern. /s/ M&K CPAS, PLLC We have served as the Company’s auditor since 2025 The Woodlands, TX April 1, 2026 F- 2 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of Algorhythm Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Algorhythm Holdings, Inc. (the “Company”) as of December 31, 2024, the related consolidated statements of operations, shareholders’ deficit, and cash flows for the year ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements, before the effects of the adjustments to retrospectively adjust share and per share amounts for the reverse split as described in Note 1, and to reclassify the operations of the sold Singing Machine business as discontinued operations as described in Notes 2 and 19 and segment information as described in Note 15, present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively adjust share and per share amounts for the reverse split as described in Note 1, and to reclassify the operations of the sold Singing Machine business as discontinued operations as described in Notes 2 and 19 and segment information as described in Note 15, and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by M&K CPAs, PLLC. Explanatory Paragraph – Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Marcum LLP Marcum llp We have served as the Company’s auditor from 2023 through April 2025. Philadelphia, Pennsylvania April 15, 2025 F- 3 Algorhythm Holdings, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS December 31, 2025 December 31, 2024 Assets Current Assets Cash $ 1,632,000 $ 7,233,000 Restricted cash 4,514,000 - Accounts receivable, net of allowances of $ 113,000 and $ 127,000 , respectively 1,061,000 121,000 Accounts receivable, related party - 701,000 Accounts receivable - 701,000 Prepaid expenses and other current assets 729,000 59,000 Current assets of discontinued operations - 8,649,000 Total Current Assets 7,936,000 16,763,000 Property and equipment, net 22,000 2,000 Other non-current assets 79,000 - Intangible assets, net 2,005,000 345,000 Goodwill 2,682,000 786,000 Non-current assets of discontinued operations - 406,000 Total Assets $ 12,724,000 $ 18,302,000 Liabilities and Shareholders’ Equity Current Liabilities Accounts payable $ 1,413,000 $ 387,000 Accrued expenses 1,556,000 1,746,000 Other current liabilities 69,000 - Warrant liability - 16,603,000 Promissory notes payable, net 9,102,000 50,000 Current portion of notes payable to related parties 2,300,000 265,000 Current liabilities of discontinued operations - 9,387,000 Total Current Liabilities 14,440,000 28,438,000 Long-term provision for employee benefits 144,000 - Notes payable to related parties, net of current portion - 385,000 Total Liabilities 14,584,000 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 December 31, 2025 and December 31, 2024 - - Common stock, $ 0.01 par value; 800,000,000 and 100,000,000 shares authorized; 3,414,542 and 470,825 shares issued and outstanding at December 31, 2025 and December 31, 2024 35,000 5,000 Additional paid-in capital 65,674,000 39,682,000 Accumulated other comprehensive loss ( 25,000 ) - Accumulated deficit ( 65,043,000 ) ( 49,172,000 ) Non-controlling interest ( 1,743,000 ) ( 1,036,000 ) Treasury stock, 10,990 and - 0 - shares reserved at December 31, 2025 and December 31, 2024 ( 758,000 ) - Total Shareholders’ Deficit ( 1,860,000 ) ( 10,521,000 ) Total Liabilities and Shareholders’ Deficit $ 12,724,000 $ 18,302,000 See notes to the consolidated financial statements F- 4 Algorhythm Holdings, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS December 31, 2025 December 31, 2024 Year Ended December 31, 2025 December 31, 2024 Net Sales $ 4,391,000 $ 297,000 Cost of Sales 5,706,000 491,000 Gross Loss ( 1,315,000 ) ( 194,000 ) Operating Expenses Selling expenses 4,000 - General and administrative expenses 6,629,000 4,656,000 Impairment of goodwill - 3,592,000 Total Operating Expenses 6,633,000 8,248,000 Loss From Operations ( 7,948,000 ) ( 8,442,000 ) Other Expenses Change in fair value of warrant liability ( 6,468,000 ) 334,000 Loss on issuance of warrants - ( 8,889,000 ) Interest expense, net ( 747,000 ) ( 1,887,000 ) Total Other Expenses ( 7,215,000 ) ( 10,442,000 ) Loss From Continuing Operations Before Income Tax ( 15,163,000 ) ( 18,884,000 ) Income tax loss attributable to continuing operations ( 47,000 ) - Net Loss From Continuing Operations ( 15,210,000 ) ( 18,884,000 ) Net loss from discontinued operations ( 1,362,000 ) ( 5,483,000 ) Net Loss ( 16,572,000 ) ( 24,367,000 ) Net loss attributable to non-controlling interest 701,000 1,110,000 Net Loss Available to Common Shareholders $ ( 15,871,000 ) $ ( 23,257,000 ) Loss Per Common Share Basic and diluted from continuing operations $ ( 5.86 ) $ ( 270.44 ) Basic and diluted from discontinued operations ( 0.55 ) ( 83.43 ) Basic and diluted $ ( 6.41 ) $ ( 353.87 ) Weighted Average Common and Common Equivalent Shares: Weighted Average Common and Common Equivalent Shares: Basic and diluted 2,475,293 65,722 See notes to the consolidated financial statements F- 5 Algorhythm Holdings, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS December 31, 2025 December 31, 2024 Year Ended December 31, 2025 December 31, 2024 Net Loss $ ( 16,572,000 ) $ ( 24,367,000 ) Other comprehensive loss Foreign currency translation adjustment ( 31,000 ) - Total Comprehensive Loss ( 16,603,000 ) ( 24,367,000 ) Total comprehensive loss attributable to non-controlling interest 707,000 - Total Comprehensive Loss Available to Common Shareholders $ ( 15,896,000 ) $ ( 24,367,000 ) See notes to the consolidated financial statements F- 6 Algorhythm Holdings, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT For the Year Ended December 31, 2025 and 2024 Common Stock Additional Paid-in Treasury Accumulated Other Comprehensive Accumulated Non-Controlling Shares Amount Capital Stock Loss Deficit Interest Total Balance at December 31, 2023 32,090 $ - $ 33,493,000 $ - $ - $ ( 25,915,000 ) $ - $ 7,578,000 Net loss - - - - - ( 23,257,000 ) ( 1,110,000 ) ( 24,367,000 ) Sale of common stock and pre-funded warrants, net of offering costs 418,927 4,000 4,881,000 - - - - 4,885,000 Stock based compensation 5,099 - 630,000 - - - - 630,000 Common stock issued for purchase of SemiCab, Inc. 3,209 - 494,000 - - - - 494,000 Subsidiary interests issued for purchase of SemiCab, Inc. - - - - - - 74,000 74,000 Repurchase of common stock - related parties - - ( 758,000 ) - - - - ( 758,000 ) Issuance of common stock with debt 11,500 1,000 942,000 - - - - 943,000 Balance at December 31, 2024 470,825 $ 5,000 $ 39,682,000 $ - $ - $ ( 49,172,000 ) $ ( 1,036,000 ) $ ( 10,521,000 ) Net loss - - - - - ( 15,871,000 ) ( 701,000 ) ( 16,572,000 ) Foreign currency translation adjustment - - - - ( 25,000 ) - ( 6,000 ) ( 31,000 ) Exercise of Series B warrants 1,910,975 19,000 15,195,000 - - - - 15,214,000 Stock-based compensation 186,701 3,000 431,000 - - - - 434,000 Reclassification of Series A warrants to equity - - 7,857,000 - - - - 7,857,000 Capital contribution - - 439,000 - - - - 439,000 Common stock issued for acquisition of SMCB 119,742 1,000 315,000 - - - - 316,000 Repurchase of common stock from related parties ( 10,990 ) - 758,000 ( 758,000 ) - - - - Common stock issued as commitment fee 95,694 1,000 190,000 - - - - 191,000 Common stock issued upon settlement of prepaid purchases 505,671 5,000 670,000 - - - - 675,000 Conversion of promissory note payable into common stock 135,723 1,000 137,000 - - - - 138,000 Other 201 - - - - - - - Balance at December 31, 2025 3,414,542 $ 35,000 $ 65,674,000 $ ( 758,000 ) $ ( 25,000 ) $ ( 65,043,000 ) $ ( 1,743,000 ) $ ( 1,860,000 ) See notes to the consolidated financial statements F- 7 Algorhythm Holdings, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS December 31, 2025 December 31, 2024 For the Year Ended December 31, 2025 December 31, 2024 Cash flows from operating activities Net loss from continuing operations $ ( 15,210,000 ) $ ( 18,884,000 ) Adjustments to reconcile net loss to net cash used in operating activities: Net foreign currency translation adjustment ( 31,000 ) - Depreciation and amortization of property and equipment and intangible assets 249,000 30,000 Amortization of debt discount and issuance cost 212,000 1,520,000 Reduction in SMCB loan in exchange for services 304,000 637,000 Loss on allowance for credit loss - 439,000 Impairment of goodwill from purchase of SemiCab,Inc. - 3,592,000 Change in fair value of warrant liability 6,468,000 ( 334,000 ) Loss on issuance of warrants - 8,889,000 Stock-based compensation 434,000 630,000 Changes in operating assets and liabilities: Accounts receivable ( 621,000 ) 72,000 Prepaid expenses and other current assets ( 293,000 ) ( 46,000 ) Other non-current assets 49,000 14,000 Accounts payable 654,000 ( 345,000 ) Accrued expenses 263,000 ( 199,000 ) Other current liabilities 69,000 - Provision for employee benefits 144,000 - Net cash used in operating activities attributable to continuing operations ( 7,309,000 ) ( 3,985,000 ) Cash flows from investing activities Purchase of property and equipment ( 14,000 ) - Capitalization of internal use software costs ( 419,000 ) - Repurchase of shares of common stock ( 758,000 ) - Pre-acquistion advances to SemiCab, Inc. - ( 415,000 ) Cash received from acquisition of SemiCab, Inc. assets - 17,000 Cash received from acquisition of SMCB 593,000 - Advances to SMCB ( 1,172,000 ) ( 1,777,000 ) Net cash used in investing activities attributable to continuing operations ( 1,770,000 ) ( 2,175,000 ) Cash flows from financing activities Proceeds from sale of common stock and warrants, net of offering costs - 12,932,000 Proceeds from issuance of senior secured notes, net of discounts - 2,000,000 Proceeds from issuance of promissory notes, net of offering costs and discounts 10,213,000 - Payment of senior secured notes and debt issuance costs - ( 2,578,000 ) Payment of promissory notes ( 427,000 ) - Payment of promissory notes, related parties ( 100,000 ) - Payments on merchant cash advances payable - ( 631,000 ) Other - ( 75,000 ) Net cash provided by financing activities attributable to continuing operations 9,686,000 11,648,000 Net cash used in operating activities attributable to discontinued operations ( 2,539,000 ) ( 5,080,000 ) Net cash provided by investing activities attributable to discontinued operations 845,000 122,000 Net cash provided by financing activities attributable to discontinued operations - - Total cash used in discontinued operations ( 1,694,000 ) ( 4,958,000 ) Net change in cash ( 1,087,000 ) 530,000 Cash and restricted cash at beginning of period 7,233,000 6,703,000 Cash and restricted cash at end of period $ 6,146,000 $ 7,233,000 Supplemental disclosures of cash flow information: Cash paid for interest $ 246,000 $ 591,000 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 $ - Issuance of common stock with debt $ - 943,000 Repurchase of common shares- related parties $ - 758,000 Effect of extinguishment of advances to SemiCab, Inc. $ - 415,000 Common stock issued for acquisition of SemiCab, Inc assets $ - 568,000 Common stock issued for acquisition of SMCB $ 316,000 $ - Promissory note issued for acquisition of SMCB $ 1,750,000 $ - Common stock issued as commitment fee $ 191,000 $ - Common stock issued upon settlement of prepaid purchases $ 675,000 $ - Conversion of promissory note payable into common stock $ 138,000 $ - See notes to the consolidated financial statements F- 8 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Note 1 – Nature of Business Algorhythm Holdings, Inc. (f/k/a The Singing Machine Company, Inc.) (the “Company”) is an artificial intelligence (“AI”) technology company focused on the growth and development of SemiCab. SemiCab is an AI-enabled software logistics and distribution business that utilizes the Company’s SemiCab technology platform to enable retailers, brands and transportation providers to address common supply chain problems globally. The Company operates its SemiCab business through its subsidiary, SemiCab Holdings, LLC. Prior to August 1, 2025, the Company had a second business, which was Singing Machine. Singing Machine was a home karaoke consumer products business that designed and distributed karaoke products to retailers and ecommerce partners globally through its subsidiary, The Singing Machine Company, Inc. The Company sold its Singing Machine business on August 1, 2025. Accordingly, the Company no longer owns or operates the Singing Machine business. The results of operations, cash flows, and related assets and liabilities of the Singing Machine business have been classified as discontinued operations in the Company’s consolidated financial statements for all periods presented. The Company’s operations include its 80 %-owned subsidiaries, SemiCab Holdings, LLC, a Nevada limited liability company (“SemiCab Holdings”), and SMCB Solutions Private Limited, an Indian company (“SMCB”), and 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 (“SMC”), and RIME Holdings, LLC (“Rime”). 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 – Sale of Singing Machine Business On August 1, 2025, the Company 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 the Company’s Singing Machine business for $500,000. The transaction closed on August 1, 2025. Mathieu Peloquin is the Senior Vice-President, Marketing and Communications of Stingray Group and served as a member of the Company’s board of directors until October 6, 2025. F- 9 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 The Company 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 represented a strategic shift that will have a significant effect on the Company’s operations and financial results. Accordingly, the Company accounted for the Singing Machine business as a discontinued operation in this Annual Report on Form 10-K. All amounts and disclosures for all periods presented reflect only the continuing operations of the Company unless otherwise noted. Additional information is presented in Note 19 – Discontinued Operations . Note 3 – Liquidity, Going Concern and Management Plans As of December 31, 2025, the Company’s cash and restricted cash balance was $ 6,146,000 . 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. 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 its 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 any 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 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. F- 10 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Note 4 – Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries SMCL, SMCM, SMH, SMC, Rime and its eighty percent ( 80 %)-owned subsidiaries, SemiCab Holdings and SMCB. All intercompany accounts and transactions have been eliminated in consolidation for all periods presented. The Company evaluates its business relationships with related parties to identify potential Variable Interest Entities (“VIEs”) under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation . The Company will consolidate any VIE in which it is deemed to be the primary beneficiary of the VIE. The Company will be deemed to be the primary beneficiary of the VIE if the Company has a controlling financial interest in the VIE. A controlling financial interest has the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact its economic performance; and (ii) the obligation to absorb losses of the VIE that could be significant to the VIE or the right to receive benefits from the VIE that could be significant to the VIE. If both characteristics are met and, then the Company will consolidate that VIE into its consolidated financial statements. As prescribed by ASC 810, if the Company holds a variable interest in an entity that is a VIE, but the Company is not the entity’s primary beneficiary, then the Company must disclose the methodology (e.g., significant judgments and assumptions made) that it used to determine that it is not the primary beneficiary of the VIE. Additional information required includes information about the types of involvement considered significant, and those considered in the determination of whether the reporting entity is the primary beneficiary. Furthermore, if the Company provides or intends to provide financial or other support, whether explicitly or implicitly, to the VIE when not contractually required to, the Company must disclose the type and amount of the support along with the primary reasons for providing the support. Both qualitative and quantitative information about the Company’s involvement with the VIE must be disclosed, including the nature, purpose, size, and activities of the VIE and how the VIE is financed. The Company determined that SMCB was a VIE because the Company provided financial support to SMCB in the form of a loan agreement to fund SMCB’s operations. The Company further determined that it was not the primary beneficiary of SMCB because the Company did not have the power to direct or control’s significant activities related to its business. Accordingly, the Company did not consolidate SMCB’s results of operations and financial position in its consolidated financial statements prior to May 2, 2025. On May 2, 2025, SemiCab Holdings acquired 99.99 % of the equity shares of SMCB from SemiCab, Inc. As a result, on May 2, 2025, the Company consolidated SMCB’s results of operations and financial position in its consolidated financial statements. A discussion of this transaction is set forth herein in Note 18 – Acquisition of SMCB . F- 11 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Reclassification of Prior Periods Presentation Certain prior period amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ materially from these estimates. Estimates are assessed each period and updated to reflect current information. Significant estimates include allowance for credit losses, accruals relating to litigation, goodwill, share-based compensation expense and warrant liability. Segment Reporting Pursuant to ASC Topic 280, Segment Reporting (“ASC 280”), the Company’s Chief Executive Officer serves as the Company’s Chief Operating Decision Maker (“CODM”). Prior to August 1, 2025, the CODM determined that the Company operated in two reportable segments: (i) the SemiCab business, and (ii) the Singing Machine business. On August 1, 2025, the Company completed the sale of its Singing Machine business. Upon the completion of this transaction, the Company began operating as a single reportable segment consisting of its SemiCab business. The CODM evaluates and manages the Company’s operations using net loss as the primary measure to allocate resources, make operating decisions, and assess financial performance. In addition, the CODM considers non-financial information and other qualitative factors when evaluating performance, establishing compensation, monitoring budget-to-actual results, and making capital allocation decisions. Additional information is presented in Note 15 – Segment Information and Revenue Disaggregation . Cash and Restricted Cash The Company considers cash to include cash in banks and deposits with financial institutions that can be liquidated without prior notice or penalty. Cash is maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. The Company classifies all cash whose use is limited by contractual provisions as restricted cash. Restricted cash as of December 31, 2025, consists of cash required under the Streeterville Capital Transaction as detailed in Note 12 – Securities Transactions . F- 12 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Accounts Receivable and Allowances for Expected Credit Losses The Company recognizes credit losses in accordance with Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326) . The Company recognizes an allowance for credit losses at the time a receivable is recorded based on its estimate of expected credit losses and adjusts this estimate over the life of the receivable as needed. The Company evaluates specific identified risks and the aggregation and risk characteristics of a receivable pool and develops loss rates that reflect historical collections, current forecasts of future economic conditions over the time horizon the Company is exposed to credit risk, and payment terms or conditions that may materially affect future forecasts. As needed, amounts are written-off when determined to be uncollectible. Property and Equipment, Net Property and equipment are stated at cost, less accumulated depreciation. Expenditures for repairs and maintenance are charged to expense as incurred. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to their estimated useful lives using straight-line methods. Intangible Assets- Internal Use Software The Company capitalized costs related to the development of internal-use software in accordance with ASC 350-40, Intangibles — Goodwill and Other — Internal-Use Software. Capitalized costs primarily consist of personnel and third-party fees incurred during the application development stage for software that support the Company’s Software as a Service (“SaaS”) operations. Costs incurred during the preliminary project and post-implementation stages are expensed as incurred. The capitalized internal-use software is amortized on a straight-line basis over its estimated useful life, which is 5 years, beginning when the software is ready for its intended use. Goodwill The Company evaluates its goodwill for impairment in accordance with ASU 350, Intangibles – Goodwill and Other . Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. The Company tests the recorded amount of goodwill for impairment on an annual basis on December 31 or more frequently if there are indicators that the carrying amount of goodwill exceeds its carried value. F- 13 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Long Lived and Intangible Assets The Company reviews long-lived assets and intangible assets for impairment in accordance with ASC Topic 360, Property, Plant and Equipment (“ASC 360”). The Company reviews long-lived assets and intangible assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset or intangible asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the asset to its carrying value. An impairment loss is recognized when the estimated undiscounted future cash flows expected to result from the use of the asset is less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows . The Company had no impairment loss related to long-lived assets or intangible assets for the year ended December 31, 2025 or December 31, 2024. Business Combinations The Company accounts for business combinations using the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. The Company allocates the purchase price of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. The purchase price allocation process requires management to make significant estimates and assumptions at the acquisition date with respect to intangible assets. The allocation of the consideration transferred in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date. Direct transaction costs associated with the business combination are expensed as incurred. The Company includes the results of operations of the business that it has acquired in its consolidated results prospectively from the date of acquisition. Fair Value Measurements In accordance with ASC 820, Fair Value Measurements and Disclosures , fair value is defined as the exit price, or the amount that would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs include those that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value: ● Level 1: Quoted market prices in active markets for identical assets or liabilities. F- 14 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 ● Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or model-derived valuations. All significant inputs used in the Company’s valuations are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level 2 inputs also include quoted prices that were adjusted for security-specific restrictions which are compared to output from internally developed models such as a discounted cash flow model. ● Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The carrying amounts of financial instruments carried at cost, including cash, accounts receivables and accounts receivable – related party, trade payables advances and notes payables and notes payable – related party approximate their fair value due to the short-term maturities of such instruments. The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Warrants The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. Finally, the Company determines if the warrants meet the definition of a derivative based on their contractual terms. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance, as of each subsequent quarterly period end date while the warrants are outstanding and at interim dates if circumstances warrant such analysis. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and at each balance sheet date thereafter. Changes in the estimated fair value of the liability classified warrants are recognized as a non-cash gain or loss on the consolidated statements of operations. The Company also evaluates if changes in contractual terms or other considerations would result in the reclassification of outstanding warrants from liabilities to stockholders’ equity (or vice versa). F- 15 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Revenue Recognition The Company recognizes revenue in accordance with ASC 606 , Revenue from Contracts with Customers . All revenue is generated from contracts with customers. The Company recognizes revenue when services are performed for the customer in an amount, referred to as the transaction price, that reflects the consideration to which the Company is expected to be entitled in exchange for those services. The Company determines revenue recognition utilizing the following five steps: (i) identification of the contract with a customer; (ii) identification of the performance obligations in the contract (promised services that are distinct); (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as, the Company transfers control of the service for each performance obligation. The Company’s performance obligations are established when a customer submits a purchase order notification and the Company accepts the order. The Company identifies performance obligations as the delivery of the requested service at the location specified in the customer’s contract and/or purchase order. Revenue from sales of services is recognized at the point in time when the Company transfers control to the customer, typically at the time when the services are performed in full, at which time there are no further performance obligations remaining. The Company’s contracts with customers consist of one performance obligation, which is the performance of services. The Company’s contracts have no financing elements. Payment terms are generally less than 90 days and have no further contract asset or liability obligations once control of the service is transferred to the customer. Revenue is recorded in the amount of consideration the Company expects to receive for the sale of the service. The Company utilizes independent contractors and third-party carriers to perform transportation services in connection with its SemiCab business. In accordance with ASC Topic 606, Revenue Recognition: Principal Agent Considerations, management evaluates the terms of agreements with customers and vendors to determine whether it acts as principal or agent in each arrangement. This assessment focuses on whether control of the transportation service is obtained prior to transferring the service to the customer. Based on this evaluation of the control model, management has concluded that it acts as the principal and, accordingly recognizes revenue on a gross basis. In the event the Company acts as an agent, such revenue will be recognized net of the cost of purchased transportation. All revenue earned from contracts are presented net of discounts, allowances, and applicable taxes F- 16 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Share-Based Compensation The Company has granted stock options, warrants, restricted stock awards and restricted stock units to employees, non-employee consultants and non-employee members of its board of directors. The Company also has an equity incentive plan that provides for the issuance of equity incentive awards, such as stock options, warrants, 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. The Company measures the compensation cost associated with all share-based payments based on grant date fair values. The fair value of each stock option and stock purchase right is estimated on the date of grant using an option pricing model that meets certain requirements. The Company generally uses the Black-Scholes option pricing model to estimate the fair value of its stock options and stock purchase rights. The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by the Company’s stock price and several assumptions, including expected volatility, expected term, risk-free interest rate and expected dividends. For grants of stock options, the Company uses a blend of historical and implied volatility for traded options on its stock to estimate the expected volatility assumption required in the Black-Scholes model. The Company’s use of blended volatility estimates in computing the expected volatility assumption for stock options is based on its belief that while the implied volatility is representative of expected future volatility, the historical volatility over the expected term of the award is also an indicator of expected future volatility. The Company utilizes a blended volatility estimate that consists of implied volatility and historical volatility in order to estimate the expected volatility assumption of the Black-Scholes model. The expected term of stock options granted is estimated using historical experience. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected terms of the Company’s stock options and stock purchase rights. The dividend yield assumption is based on the Company’s history and expectation of no dividend payouts. The Company estimates forfeitures at the time of grant and revises these estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company estimates its forfeiture rate assumption for all types of share-based compensation awards based on historical forfeiture rates related to each category of award. Compensation costs associated with grants of restricted stock awards and restricted stock units are measured at fair value, which has historically been the closing price of the Company’s common stock on the date of grant. F- 17 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 The Company recognizes share-based compensation expense over the requisite service period of each individual award, which generally equals the vesting period, using the straight-line method for awards that contain only service conditions. For awards that contain performance conditions, the Company recognizes the share-based compensation expense on a straight-line basis for each vesting tranche, when achievement of that tranche is considered probable. The Company evaluates the assumptions used to value stock awards on the grant date. If there are any modifications or cancellations of the underlying unvested securities, the Company may be required to accelerate, increase or cancel any remaining unearned share-based compensation expense. Income Taxes T h e C o m p a n y f o ll o w s t h e p r o v isi on s of F A S B A S C 74 0, A cc o un t i n g f o r I n c o m e T a x es (“ASC 740”). U n d er t h e a ss et a n d li a b ili t y m e t h o d o f A S C 740 , d e f erred t ax a s s e t s a n d li a b ilit i es are rec og n i zed f o r t h e f u t u re t ax c o n s e q u e n c e s a tt r i b u t ed t o d i ff er e n ces b e t w e e n t h e f i n a n c i al st a t e m e n t car r y i ng a m ou n t s o f e x i s ti n g a s s e t s a n d li a b iliti es a n d t h e i r re s p ec t i v e t ax b a s e. De f erred t ax a s s e t s a n d li a b iliti e s are m ea s u red u s i n g e n ac t ed t ax ra t es e x p ec t ed t o a pp l y t o t a x a b l e i n c o m e i n t h e y ears i n w h i ch t h o s e t e m po ra r y d i ff er e n ces are e x p ec t ed t o b e rec o v ered o r s e t t l e d . U n d er A S C 740 , t he ef f ect o n d e f erred t ax a ss e t s a n d li a b iliti es o f a c h a n g e i n t ax ra t es i s rec o gn i zed i n i n c o m e i n t h e p er i o d t h at i n c l u d es t h e e n ac t m e n t d a t e. If i t i s m o re li k e l y t h an n o t t h at s o m e po r ti o n o f a d e f erred t ax a ss et w i l l n o t b e rea li ze d , a v a l u a t i o n a ll o w a n ce i s rec og n i ze d . The Company recognizes a liability for uncertain tax positions. An uncertain tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax return that is not based on clear and unambiguous tax law and that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. As of December 31, 2025 and 2024, there were no uncertain tax positions that resulted in any adjustment to the Company’s provision for income taxes. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. The Company currently has no liabilities recorded for accrued interest or penalties related to uncertain tax provisions. In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which is intended to enhance the transparency and decision usefulness of income tax disclosures. The standard requires, among other things, enhanced rate reconciliation disclosures, disaggregation of income taxes paid by jurisdiction, and disaggregation of income (loss) from continuing operations before income tax expense (benefit) between domestic and foreign jurisdictions. The Company adopted ASU 2023-09 effective January 1, 2025 on a prospective basis. The adoption of this standard did not have an impact on the Company’s consolidated financial statements but resulted in expanded income tax disclosures in the accompanying notes. Net Loss Per Common Share Net loss available to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares that were outstanding during the period. Diluted net loss available to common stockholders reflects the potential dilution that could occur if securities or other contracts to acquire common stock were exercised or converted into common stock. Potentially dilutive securities are excluded from the diluted net loss available to common stockholders computation in loss periods as their effect would be anti-dilutive . F- 18 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Foreign Currency Translation The functional currency of the Company and its subsidiaries is the U.S. dollar, except for SMCB, whose functional currency is the Indian rupee. The financial statements of SMCB are translated into U.S. dollars for consolidation purposes. Assets and liabilities are translated at the exchange rates in effect at the balance sheet date, while revenues and expenses are translated at the average exchange rates during the reporting period. Equity transactions are translated using historical exchange rates. Resulting translation adjustments are recorded in accumulated other comprehensive income (loss) within shareholders’ equity. Recent Accounting Pronouncements In May 2025, the FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810). This ASU provides that a reporting entity involved in a business combination effected primarily by the exchange of equity interests must consider the factors in ASC 805-10-55-12 through 55-15 to determine which entity is the accounting acquirer regardless of whether the legal acquiree is a Variable Interest Entity (“VIE”). The amendments in ASU 2025-03 must be applied prospectively to any business combination that occurs after the initial adoption date. ASU 2025-03 is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures. In May 2025, the FASB issued ASU 2025-04, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), which clarifies the guidance in both ASC 718 and ASC 606 on the accounting for share-based payment awards that are granted by an entity as consideration payable to its customer. The ASU is intended to reduce diversity in practice and improve existing guidance, primarily by revising the definition of a “performance condition” and eliminating a forfeiture policy election for service conditions associated with share-based consideration payable to a customer. In addition, the ASU clarifies that the guidance in ASC 606 on the variable consideration constraint does not apply to share-based consideration payable to a customer “regardless of whether an award’s grant date has occurred” (as determined under ASC 718). ASU 2025-04 is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures. F- 19 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 In July 2025, the FASB issued ASU 2025-05, Financial Instruments — Credit Losses (Topic 326), which provides a practical expedient for measuring expected credit losses on current receivables and contract assets arising under Topic 606, Revenue from Contracts with Customers. The ASU allows entities to assume that the macroeconomic conditions existing at the balance sheet date will remain unchanged over the remaining life of those assets. The amendments are effective for fiscal years beginning after December 15, 2025, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures. In August 2025, the FASB issued ASU 2025-06, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40). This ASU simplifies the accounting for costs incurred in the development of internal-use software by removing the concept of multiple project stages. Under the new guidance, capitalization begins when management authorizes and commits funding to the project and it is probable that the project will be completed and the software placed into service. The amendments are effective for annual reporting periods beginning after December 15, 2027, and interim periods within those years. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures. In September 2025, the FASB issued ASU 2025-07, Derivatives and Hedging (Topic 815). This ASU clarifies the scope of derivative accounting for certain contracts and provides guidance on share-based, non-cash consideration received from a customer under Topic 606. The amendments expand a scope exception for contracts whose underlying is based on an entity’s own operations or activities, reducing the number of arrangements that qualify as derivatives. The ASU also clarifies the accounting for share-based consideration received from a customer. The amendments are effective for fiscal years beginning after December 15, 2026, including interim periods within those years. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures. In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements (“ASU 2025-11). The purpose of this ASU is to improve the guidance of Topic 270, Interim Reporting, by providing clarity on the current interim reporting requirements. This amendment also provides additional guidance on what disclosures should be provided in interim reporting periods. The amendments in this ASU also add to Topic 270 a principle that requires entities to disclose events since the end of the last annual reporting period that have a material impact on the reporting entity. The amendments in this ASU are effective for all public companies for interim reporting periods within annual reporting periods beginning after December 31, 2027. Early adoption is permitted. The amendments in this ASU can be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures. The Company reviewed all other significant newly-issued accounting pronouncements and concluded that they either are not applicable to the Company’s operations or that no material effect is expected on its consolidated financial statements as a result of future adoption. F- 20 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Note 5 – Acquisition of SemiCab, Inc.’s Assets On June 11, 2024, the Company, its wholly-owned subsidiary, SemiCab Holdings, SemiCab, Inc., Ajesh Kapoor and Vivek Sehgal entered into an asset purchase agreement pursuant to which the Company agreed to purchase substantially all of the assets, and assume certain specified liabilities, of SemiCab, Inc. On July 3, 2024 (the “Acquisition Date”), the parties completed the acquisition and, on that date, the Company issued 3,209 shares of the Company’s common stock and a 20 % membership interest in SemiCab Holdings to SemiCab, Inc. The Company acquired SemiCab, Inc.’s business to diversify the Company’s business. Pursuant to the terms of the asset purchase agreement that the Company entered into on June 11, 2024, the Company entered into an option agreement that granted SemiCab Holdings the right to acquire all of the issued and outstanding equity securities of SMCB, which is a subsidiary of SemiCab, Inc., for 1,605 shares of the Company’s common stock. The Company did not exercise this right and the option agreement expired unexercised on August 31, 2024. In connection with the asset purchase agreement, effective July 3, 2024, SemiCab Holdings entered into employment agreements with Ajesh Kapoor and Vivek Sehgal. Mr. Kapoor’s agreement is for a term of three years with an annual base salary of $ 140,000 for 2024, $ 240,000 for 2025, and $ 300,000 for 2026. Mr. Sehgal’s agreement is for a term of three years with an annual base salary of $ 105,000 for 2024, $ 210,000 for 2025, and $ 240,000 for 2026. Both executives’ salaries are subject to annual review by the board of managers of SemiCab Holdings. The value of the consideration paid by the Company to SemiCab, Inc. for the SemiCab business was $ 983,000 . The 3,209 shares issued to SemiCab, Inc. were valued at $ 494,000 on the Acquisition Date based on the trading price of the Company’s common stock on the Acquisition Date discounted for a lack of marketability. The Company recognized a non-controlling interest at fair value as of the Acquisition Date in the amount of $ 74,000 , representing the value of the 20 % membership interest in SemiCab Holdings that was issued to SemiCab, Inc. in the transaction. The 20% membership interest was valued at the Acquisition Date based on the fair value of the implied value of SemiCab Holdings based on the value of the Company’s common stock issued on the Acquisition Date. The Company recorded a measurement period adjustment during the fourth quarter of 2024 that reduced the value of finite lived intangible assets acquired in the transaction by $ 1,050,000 . This had the effect of increasing goodwill by $ 1,050,000 . F- 21 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 The following table presents the allocation of the consideration transferred to the assets acquired and liabilities assumed based on their fair values: Schedule of Recognized Identified Assets Acquired and Liabilities Assumed Consideration: Equity consideration $ 494,000 Fair value of non-controling interest 74,000 Total equity consideration 568,000 Effective extinguishment of advances to SemiCab, Inc. 415,000 Total consideration $ 983,000 Identifiable net assets acquired: Cash $ 17,000 Accounts receivable 193,000 Prepaid expenses and other current assets 13,000 Property and equipment, net 3,000 Other non-current assets 14,000 Customer relationships (nine 9 year estimated useful life) 25,000 Trade name (nine 9 year estimated useful life) 25,000 Developed technology (six 6 year estimated useful life) 325,000 Accounts payable and accrued expenses ( 2,679,000 ) Merchant cash advances payable ( 631,000 ) Notes payable to related parties ( 650,000 ) Other current liabilities ( 50,000 ) Net assets acquired $ ( 3,395,000 ) Goodwill $ 4,378,000 Note 6 – Property and Equipment, Intangible Assets and Goodwill A summary of the Company’s property and equipment at December 31, 2025 and 2024 is as follows: Schedule of Property and Equipment Useful December 31, December 31, Life 2025 2024 Computer and office equipment 3 - 5 years $ 64,000 $ 8,000 Less: accumulated depreciation ( 42,000 ) ( 6,000 ) Property and equipment net $ 22,000 $ 2,000 Depreciation expense was $ 8,000 and $ 0 for the year ended December 2025 and December 31, 2024, respectively. F- 22 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 A summary of the Company’s intangible assets at December 31, 2025 and 2024 is as follows: Schedule of Intangible Assets Useful December 31, December 31, Life 2025 2024 Customer relationships of SemiCab, Inc. 9 years $ 25,000 $ 25,000 Trade name of SemiCab, Inc. 9 years 25,000 25,000 Developed technology of SemiCab, Inc. 6 years 325,000 325,000 Customer relationships of SMCB 9 years 1,008,000 - Reacquired rights of SMCB 5 years 294,000 - Trade name of SMCB 5 years 180,000 - Internal use software 5 years 419,000 - Intangible assets gross 2,276,000 375,000 Less: accumulated amortization ( 271,000 ) ( 30,000 ) Intangible assets net $ 2,005,000 $ 345,000 Amortization expense was $ 241,000 and $ 30,000 for the years ended December 31, 2025 and 2024, respectively. During the year ended on December 31, 2024, the Company tested the recorded amount of goodwill from the acquisition of SemiCab, Inc.’s business 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. As a result of this test, the Company recorded an impairment charge of $ 3,592,000 during the year ended December 31, 2024 and the balance of the Company’s goodwill on December 31, 2024 was $ 786,000 . On May 2, 2025, SemiCab Holdings acquired 99.99 % of the equity shares of SMCB from SemiCab, Inc. In connection with the acquisition, the Company recorded additional goodwill in the amount of $ 1,896,000 . As a result, the balance of the Company’s goodwill was $ 2,682,000 on December 31, 2025. During the year ended on December 31, 2025, the Company tested the recorded amount of goodwill from the acquisition of SemiCab, Inc.’s business and SMCB as of December 31, 2025 for impairment to see if the carrying amount of goodwill exceeded its carried value. As a result of this test, the Company determined that no impairment of goodwill was needed to be recorded as of December 31, 2025. The following table presents the changes in the value of the goodwill recognized in connection with the acquisition of SemiCab, Inc. business: Schedule of Changes in Goodwill Balance at January 1, 2024 $ - 0 - Goodwill from acquisition of SemiCab, Inc.’s business on July 3, 2024 4,378,000 Impairment of goodwill ( 3,592,000 ) Balance at December 31, 2024 $ 786,000 Goodwill from acquisition of SMCB on May 2, 2025 1,896,000 Impairment of goodwill - 0 - Balance at December 31, 2025 $ 2,682,000 F- 23 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Note 7 – Notes Payable to Related Parties Notes payable to related parties consist of the following: Schedule of Notes Payable to Related Parties December 31, December 31, 2025 2024 Loans with related parties assumed in acquisition of SemiCab business 550,000 650,000 Promissory note issued for acquistion of SMCB 1,750,000 - Total $ 2,300,000 $ 650,000 Less: current portion of notes payable to related parties 2,300,000 265,000 Notes payable to related parties, net of current portion - 385,000 Loans With Related Parties Assumed in Acquisition of SemiCab Business SemiCab Holdings assumed several unsecured loans from Ajesh Kapoor and Vivek Sehgal in the acquisition of SemiCab business. The Company incurred interest expense on these loans of $ 59,000 and $ 36,000 for the years ended December 31, 2025, and December 31, 2024, respectively. In relation to these loans, the Company did no t have any accrued interest payable as of December 31, 2025, and had accrued interest payable of $ 6,000 as of December 31, 2024, that was included within accrued expenses in the Company’s consolidated balance sheets. The terms of each loan and the balances as of December 31, 2025 and 2024 are summarized in the table below: Schedule of Notes Payable to Related Parties Loan Issue Maturity Interest Outstanding Principal Note Holder Date Date Rate December 31, 2025 December 31, 2024 Ajesh Kapoor 7/10/2021 7/10/2026 9 % $ 150,000 $ 150,000 Ajesh Kapoor 8/27/2021 8/26/2026 9 % 235,000 235,000 Vivek Sehgal 4/17/2023 10/13/2023 10 % - 50,000 Ajesh Kapoor 5/5/2023 5/4/2024 10 % - 50,000 Ajesh Kapoor 5/17/2023 2/1/2026 10 % 165,000 165,000 Total $ 550,000 $ 650,000 On October 8, 2025, the Company repaid the loan from Vivek Sehgal issued on April 17, 2023 for $ 50,000 and the loan from Ajesh Kapoor issued on May 5, 2023 for $ 50,000 . Mr. Kapoor serves as the Chief Executive Officer and Chief Technology Officer of SemiCab Holdings and as a member of the Company’s Board of Directors, and Mr. Sehgal serves as the Chief Product Officer of SemiCab Holdings. Promissory Note Issued for Acquisition of SMCB On May 2, 2025, the Company and SemiCab Holdings acquired 99.99 % of the equity shares of SMCB from SemiCab, Inc. pursuant to which, in part, the Company issued a promissory note to SemiCab, Inc. in the principal amount of $ 1,750,000 . A discussion of this transaction and the terms of the promissory note is set forth herein in Note 18 – Acquisition of SMCB . F- 24 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Note 8 – 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. 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. During the year ended December 31, 2024, the Company incurred interest expense of $ 77,000 for financing costs associated with the credit agreement. 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. The Company incurred $ 105,400 of interest expense under this financing agreement during the year ended December 31, 2024. 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. The Company incurred $ 88,800 of interest expense under this financing agreement during the year ended December 31, 2024. As of December 31, 2024, the merchant cash advance had been repaid in full. F- 25 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Note 9 – 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. 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. The final payment of the settlement was made during the year ended December 31, 2025. Accordingly, there was no unpaid balance at December 31, 2025. As of December 31, 2024, the remaining unpaid balance of the settlement was $ 325,000 and was included as a component of accrued expenses on the Company’s consolidated balance sheets. 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. F- 26 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 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 Litigation 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 . F- 27 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 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 $ 506,000 has been recorded as a component of accrued expenses on the accompanying consolidated balance sheets. 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 judgment was in the amount of $ 509,119 . On August 1, 2025, the Company filed an answer to the complaint and counterclaims against Blue Yonder for breach of contract. On January 30, 2026, the Court granted Blue Yonder’s motion for judgment on the pleadings. The outcome of this matter is uncertain. Note 10 – 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. The number of shares of common stock initially available for issuance under the plan was 1,167 shares of common stock and thereafter, beginning in 2023, an annual increase would occur as of the first day of the Company’s applicable fiscal year equal to the lesser of: (i) five percent of the outstanding shares of common stock calculated on a fully diluted basis as of the end of the Company’s immediately preceding fiscal year; (ii) 167 shares; and (iii) a lesser amount as determined by the Company’s board of directors. The shares of common stock subject to stock awards granted under the equity plan that lapse, terminate, expire prior to exercise, are canceled, or are forfeited, become available for issuance again under the equity plan. Shares subject to a stock award under the equity plan do not become available for issuance or delivery again under the equity plan if such shares are: (i) shares tendered by a participant or retained by the Company as full or partial payment to the Company for the exercise or purchase price of an award; or (ii) shares used to satisfy tax withholding obligations in connection with an award. F- 28 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 The Company’s board of directors may amend, suspend or terminate the plan or a portion of it at any time; provided, however, that to the extent required by applicable law, regulation or stock exchange rule, stockholder approval will be required for any amendment to the plan. The plan is scheduled to terminate automatically in 10 years following the earlier of: (i) the date the Company’s board of directors adopted the plan; and (ii) the date the stockholders approved the plan. On November 20, 2025, the plan was amended to provide that the number of shares of common stock available for issuance under the plan is 5,000,000 and that, commencing January 1, 2025, on the first day of each of the Company’s fiscal years thereafter, this number will be increased by the lesser of: (i) 15 % of the outstanding common stock on a fully diluted basis as of the end of the Company’s immediately preceding fiscal year, or (ii) an amount determined by the board of directors, provided that any shares from any such increases in previous years that are not actually issued shall continue to be available for issuance under the plan. Accordingly, as of December 31, 2025, there were 5,000,000 shares of common stock authorized for issuance under the plan. Of this amount, awards representing 283,666 shares of common stock were outstanding as of December 31, 2025 and. On January 1, 2026, the number of shares available for issuance under the plan increased to 5,750,000 in accordance with the terms of the plan. The Company granted awards representing 283,316 shares of common stock during the year ended December 31, 2025. The Company did not grant any awards for shares of common stock during the year ended December 31, 2024. There were 33 shares forfeited during the year ended December 31, 2024. No shares of common stock were forfeited during the year ended December 31, 2025. There were 283,666 and 351 shares of common stock underlying share-based awards that were outstanding at December 31, 2025 and 2024, respectively. As of December 31, 2025, 4,716,334 shares remained available for issuance under the plan. Share-based compensation expense includes the estimated fair value of share-based awards granted, amortized on a straight-line basis over the requisite service period for the entire portion of the award. For the years ended December 31, 2025 and 2024, the Company recognized share-based compensation expense of $ 90,000 and $ 69,000 , respectively. As of December 31, 2025, there was an unrecognized expense of $ 223,000 remaining on stock options currently vesting over time with approximate weighted average of one year and eleven months remaining until these options are fully vested. The vested options as of December 31, 2025, had no intrinsic value. As of December 31, 2025, there was an unrecognized expense of $ 143,000 remaining on restricted stock awards currently vesting over time with approximate weighted average of 3 years and 7 months remaining until these awards are fully vested. Other Equity Compensation During the years ended December 31, 2025 and 2024, the Company issued shares of its common stock as consideration for services rendered. F- 29 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 During the year ended December 31, 2025, the Company issued an aggregate of 162,882 shares of its common stock to three vendors in a non-cash transaction as consideration for services rendered or to be rendered. The shares were valued at the closing price of the Company’s common stock on the respective measurement dates, resulting in a total fair value of $ 344,000 , which was recognized as general and administrative expenses in the accompanying consolidated statement of operations. During the year ended December 31, 2024, the Company issued an aggregate of 3,873 shares of its common stock to three vendors as consideration for services rendered and issued 472 shares of common stock to Vivek Sehgal as bonus compensation earned under his employment agreement with SemiCab Holdings. The Company recognized $ 478,000 of compensation expense related to these share issuances during the year ended December 31, 2024, which was recorded as general and administrative expenses in the accompanying consolidated statement of operations. Note 11 – Net Loss Per Share The computations of basic and dilutive loss per share of commons stock outstanding for the year ended December 31, 2025 and 2024 are as follows: Schedule of Basic and Diluted Income (Loss) Per Share Year Ended Year Ended December 31, 2025 December 31, 2024 Net loss available to common shareholders $ ( 15,871,000 ) $ ( 23,257,000 ) Basic and diluted weighted average of common stock outstanding 2,475,293 65,722 Loss per common share ( 6.41 ) ( 353.87 ) The computations of the fully diluted weighted average number of shares of common stock outstanding for the years ended December 31, 2025 and 2024 are as follows: Schedule of Diluted Weighted Average Number of Shares Year Ended Year Ended December 31, 2025 December 31, 2024 Basic weighted average common shares outstanding 2,475,293 65,722 Effect of dilutive stock options and warrants - - Diluted weighted average of common shares outstanding 2,475,293 65,722 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. F- 30 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 For the year ended December 31, 2025, 181,067 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 year ended December 31, 2024, 536 shares of common stock underlying stock options and 563,335 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 12 – 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 year ended December 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 served as a member of the Company’s board of directors until November 14, 2025. 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. F- 31 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 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 year ended December 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 served as a member of the Company’s board of directors until October 6, 2025. October 2024 Private Placement On October 22, 2024, the Company entered into a securities purchase agreement pursuant to which the Company agreed to issue and sell to each purchaser: (i) an original issue discount senior secured note with a principal amount equal to such purchaser’s subscription amount divided by 0.85, and (ii) a number of shares of the Company’s common stock equal to (x) 11,500, multiplied by (y) such purchaser’s subscription amount, and divided by (z) $2,000,000. No interest would accrue on the notes unless and until an event of default occurred, upon which interest would accrue at a rate of 14% per year. The notes had a maturity date of January 22, 2025. The Offering closed on October 24, 2024. At closing, the Company issued an aggregate of 11,500 shares of its common stock and notes in the aggregate principal amount of $ 2,352,941 to the purchasers for total proceeds of $ 2,000,000 net of original issue discount of $ 352,941 . The Company recorded amortization of original issue discount in the amount of $ 352,941 during the year ended December 31, 2024, which was recorded in interest expense in other expense in the Company’s statement of operations. The 11,500 shares of common stock were valued at $ 943,000 on the date of issuance and were recorded as a debt issuance cost, fully amortized to interest expense during the year ended December 31, 2024. The Company repaid the notes in full during the 2024 year. Univest Securities served as the placement agent in the offering and received seven percent of the gross proceeds received by the Company and reimbursement of the legal fees of its counsel. 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 public offering price for each share of common stock and one accompanying Series A warrant and Series B warrants was $ 34.00 . The public offering price of each pre-funded warrant and one accompanying Series A warrant and Series B warrant was $ 32.00 . The exercise price of each pre-funded warrant was $ 2.00 per share. Each Series A warrant is exercisable for one share of common stock and had an initial exercise price equal to $ 34.00 . Each Series B warrant was exercisable for one share of common stock and had an initial exercise price equal to $ 68.00 . 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 pre-funded warrants were immediately exercisable upon issuance and were exercisable at any time until all pre-funded warrants were exercised in full. 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, after which the Series A and B warrants became exercisable for a period of five years and two and one-half years, respectively. The pre-funded warrants and Series A and B warrants contain standard adjustments to the exercise price, including for stock splits, stock dividends and pro rata distributions, and customary terms regarding the treatment of the pre-funded warrants and the Series A and B warrants in the event of a fundamental transaction, including but not limited to a merger or consolidation involving the Company, a sale of all or substantially all of the assets of the Company, or a business combination resulting in any person acquiring more than 50% of the outstanding shares of common stock of the Company. Additionally, the pre-funded warrants and Series A and B warrants include restrictions on exercise in the event the purchaser’s beneficial ownership of the Company’s common stock would exceed 4.99% of the number of shares of common stock outstanding immediately after giving effect to the exercise. The Series A and B warrants include an exercise price adjustment feature upon shareholder approval, whereby the exercise price adjusted to the greater of the lowest daily volume weighted average price during the reset period or the floor price, which is $ 6.844 per share, with a proportional increase in the number of warrant shares. The Series A and B warrants can be settled by a cash exercise or by cashless exercise, and the Series B warrants specifically can be settled by way of an alternative cashless exercise after shareholder approval is obtained, in which the Series B warrant holders can receive the same number of shares of common stock that would be issuable under a cash exercise. Upon meeting certain stock price requirements, the Company has the right to redeem any outstanding Series A and Series B warrants for $ 2.00 per share, provided the holders do not elect to exercise prior to redemption. 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. At inception, the estimated fair value of the Series A warrants was $ 5,900,000 and the Series B warrants was $ 11,000,000 , for a total estimated fair value of $ 16,900,000 . The total fair value exceeded the proceeds received in the offering by $ 8,000,000 , which the Company recorded as a loss upon issuance of warrants. The Company also expensed approximately $ 900,000 of issuance costs incurred in the offering, resulting in a total loss on issuance during the year ended December 31, 2024 of $ 8,889,000 . The estimated fair values of the Series A and B warrants have been recorded as a derivative liability at issuance and at December 31, 2024. In the Company’s consolidated statement of operations for the year ended December 31, 2024, the Company recognized a gain of $ 334,000 for the change in the fair value measurement of the warrant liability. During December 2024, the 258,412 pre-funded warrants were exercised in full, resulting in the Company receiving $ 500,000 in cash proceeds. F- 32 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 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 consolidated balance sheet at December 31, 2025. The Company recognized a loss of $ 6,468,000 during the year ended December 31, 2025 for the change in the fair value measurement of the warrant liability as of the date the warrant liability was reclassified to equity. Registered Direct Offering On December 18, 2024, the Company sold 120,337 shares of its common stock to accredited investors in a registered direct offering at a purchase price of $ 16.62 per share. The Company engaged Univest Securities to serve as its exclusive placement agent in connection with the offering. The Company agreed to pay Univest Securities a cash fee equal to eight percent of the aggregate gross proceeds received in the offering. It also agreed to reimburse Univest Securities for various expenses incurred in connection with the offering. The Company received net proceeds of $ 1,665,000 from the offering after deducting placement agent fees and other offering expenses of $ 335,000 . 1800 Diagonal Financing Transactions 1800 Diagonal Loan #1 On June 17, 2025, the Company entered into a securities purchase agreement with 1800 Diagonal Lending, LLC (“1800 Diagonal”) pursuant to which the Company issued a promissory note to 1800 Diagonal in the principal amount of $ 120,000 . The note is subject to a one-time interest charge of 12 %, or approximately $ 14,000 , and is payable in 12 monthly installments of $ 11,000 commencing on July 15, 2025. The security purchase agreement has a contingent default feature that the Company has determined to be nominal and is not applicable unless an event of default occurs. The Company received net proceeds of $ 84,000 after deductions of $ 15,000 for original issue discount, $ 16,000 for placement agent fees and $ 5,000 for legal and due diligence fees. F- 33 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 The Company incurred and paid $ 10,000 of interest expense under the promissory note during the year ended December 31, 2025. The outstanding balance of this note was $ 63,000 as of December 31, 2025. This amount is presented in the Company’s consolidated balance sheets net of unamortized issuance costs of $ 17,000 as of December 31, 2025. 1800 Diagonal Loan #2 On June 17, 2025, the Company entered into a second securities purchase agreement with 1800 Diagonal pursuant to which the Company issued a promissory note to 1800 Diagonal in the principal amount of $ 240,000 . The note is subject to a one-time interest charge of 12 %, or approximately $ 29,000 . An initial payment of $ 134,000 was due on December 15, 2025. Thereafter, the remainder is payable in six monthly installments of $ 22,000 commencing on January 15, 2026. The security purchase agreement has a contingent default feature that the Company has determined to be nominal and is not applicable unless an event of default occurs. The Company received net proceeds of $ 189,000 after deductions of $ 30,000 for original issue discount, $ 16,000 for placement agent fees and $ 5,000 for legal and due diligence fees. In December 2025, the Company and 1800 Diagonal agreed that 1800 Diagonal would convert the initial payment of $ 134,000 into shares of the Company’s common stock rather than the Company making the payment to 1800 Diagonal in cash. Accordingly, in December 2025, the Company issued an aggregate of 135,723 shares of common stock to 1800 Diagonal in full satisfaction of the initial payment of $ 134,000 . The Company incurred $ 21,000 of interest expense under the promissory note during the year ended December 31, 2025. The outstanding balance of this note was $ 122,000 as of December 31, 2025. This amount is presented in the Company’s consolidated balance sheets net of unamortized issuance costs of $ 25,000 as of December 31, 2025. Boot Capital Financing Transaction On June 17, 2025, the Company entered into a securities purchase agreement with Boot Capital, LLC (“Boot Capital”) pursuant to which the Company issued a promissory note to Boot Capital in the principal amount of $ 120,000 . The note is subject to a one-time interest charge of 12 %, or approximately $ 14,000 , and is payable in 12 monthly installments of $ 11,000 commencing on July 15, 2025. The security purchase agreement has a contingent default feature that the Company has determined to be nominal and is not applicable unless an event of default occurs. The Company received net proceeds of $ 105,000 after deductions of $ 15,000 for original issue discount. The Company incurred and paid $ 10,000 of interest expense under the promissory note during the year ended December 31, 2025. The outstanding balance of this note was $ 63,000 as of December 31, 2025. This amount is presented in the Company’s consolidated balance sheets net of unamortized issuance costs of $ 8,000 as of December 31, 2025. F- 34 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Agile Capital Financing Transaction On July 3, 2025, the Company entered into a business loan and security agreement with Agile Capital Funding, LLC (“Agile Funding”) pursuant to which it issued a promissory note to Agile Funding in the principal amount of $ 368,000 . The note is subject to a one-time interest charge of $ 162,000 and is payable in 28 weekly installments of $ 19,000 commencing on July 14, 2025. The Company received net proceeds of $ 350,000 after deductions of $ 18,000 for administrative agent fees. The Company incurred and paid $ 159,000 of interest expense under the promissory note during the year ended December 31, 2025. The outstanding balance of the note was $ 54,000 as of December 31, 2025. This amount is presented in the Company’s consolidated balance sheets net of unamortized issuance costs of $ 3,000 as of December 31, 2025. Streeterville Capital Transaction On August 21, 2025, the Company entered into a securities purchase agreement with Streeterville Capital, LLC, a Utah limited liability company (“Streeterville”), pursuant to which the Company agreed to issue and sell to Streeterville shares of the Company’ common stock 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 (the “Streeterville Transaction”). The Company also agreed to issue an additional 95,694 shares of the Company’s common stock to Streeterville as a commitment fee for the pre-paid purchase facility established under the securities purchase agreement (the “Commitment Shares”). The securities purchase agreement provides for a two-year commitment period during which, subject to certain specified conditions, the Company may request additional Pre-Paid Purchases from Streeterville provided that the amount requested is no less than $ 250,000 and the total outstanding balance of all Pre-Paid Purchases does not exceed $ 3,000,000 . The original issue discount for each additional Pre-Paid Purchase will be nine percent of the amount set forth in the applicable request and each additional Pre-Paid Purchase will accrue interest at the rate of nine percent per annum. The Company also executed a guaranty, a security agreement, and intellectual property security agreement in favor of Streeterville as part of the Streeterville Transaction. The Streeterville Transaction closed on August 21, 2025. Following the funding of each Pre-Paid Purchase, Streeterville has the right, but not the obligation, to purchase from the Company that number of shares of common stock up to the lesser of: (i) a number of shares of common stock equal in value to the outstanding balance of the funded amount, and (ii) that number of shares of common stock such that Streeterville will not beneficially own greater than 9.99 % of the Company outstanding shares of common stock. The purchase price of the shares of common stock will be 90 % of the lowest daily volume weighted average price during the 10 trading days immediately prior to the purchase notice date, but not less than the floor price, which is the greater of: (i) 20 % of the “Minimum Price” as defined under Nasdaq Listing Rule 5635(d) prior to the applicable closing of the Pre-Paid Purchase, and (ii) $ 0.10 . F- 35 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Pursuant to the terms of the securities purchase agreement, the Company filed a registration statement on Form S-1 under the Securities Act with the SEC to register the resale of the Commitment Shares and all shares of common stock issuable pursuant to the Pre-Paid Purchases. The registration statement became effective on November 10, 2025. Nasdaq Listing Rule 5635(d) provides that shareholder approval is required prior to the issuance of shares of the Company common stock equal or greater in number to 20 % of the number of shares of the Company’s common stock issued and outstanding immediately prior to the completion of the proposed issuance at a price that is less than the “Minimum Price” as such term is defined under Nasdaq Listing Rule 5635(d) in a transaction that is not a public offering. The Company obtained the requisite shareholder approval for the Streeterville Transaction on November 20, 2025. The Company may at any time prepay all or any portion of the outstanding balance of a Pre-Paid Purchase. In the event the Company elect to do so, the Company must pay Streeterville an amount equal to 110 % multiplied by the portion of the outstanding balance the Company elected to prepay. If an event of default occurs under a Pre-Paid Purchase, the outstanding balance will become immediately due and payable. At anytime thereafter, upon written notice given by Streeterville, the outstanding balance will increase by seven-and-a half percent and interest will begin accruing at a rate of the lesser of 18 % per annum or the maximum rate permitted under applicable law. The Company obligations are secured by all of the Company assets pursuant to a security agreement and have been guaranteed by the Company’s operating subsidiaries pursuant to a guarantee, each entered into with Streeterville on August 21, 2025. Univest Securities, LLC served as the placement agent in the offering (“Univest”). The Company agreed to pay Univest a cash fee equal to eight percent of the aggregate gross proceeds that it receives from any Pre-Paid Purchases that it completes and reimburse Univest for legal fees in the amount of $40,000. Pre-Paid Purchase #1 The securities purchase agreement provides for an initial Secured Pre-Paid Purchase in the principal amount of $ 4,390,000 , before deducting an original issue discount of $ 360,000 and transaction expenses of $ 30,000 (the “First Pre-Paid Purchase”), the terms of which are set forth on secured prepaid purchase #1 (“Pre-Paid Purchase #1”). The First Pre-Paid Purchase accrues interest at the rate of nine percent per annum and has a maturity date of three years. The Company paid Univest a cash fee equal to eight percent of the aggregate gross proceeds received by the Company from the First Pre-Paid Purchase. During the year ended December 31, 2025, the Company recognized $ 147,000 of interest expense associated with the First Pre-Paid Purchase. As of December 31, 2025, the outstanding principal balance of the First Pre-Paid Purchase was $ 4,390,000 , which is reflected in the consolidated balance sheets net of unamortized issuance costs of $ 734,000 . F- 36 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Pre-Paid Purchase #2 On November 13, 2025, the Company entered into Secured Pre-Paid Purchase #2 with Streeterville (“Pre-Paid Purchase #2”). 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 per annum and has a maturity date of three years. The Second Pre-Paid Purchase was similar to the First Pre-Paid Purchase, 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 “PPP2 Minimum Balance Amount”). The secured funds are being held in a deposit account (the “DACA Account”) held by RIME Holdings, LLC, a Utah limited liability company and wholly-owned subsidiary of the Company that the Company 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 (“Lakeside Bank”), and Streeterville. Accordingly, of the $ 5,000,000 proceeds that the Company received from the Second Pre-Paid Purchase, $ 4,500,000 were placed in the DACA Account. The Company has 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 PPP2 Minimum Balance Amount. As long as no event of default has occurred, the Company may withdraw from the Deposit Account any funds in excess of the PPP2 Minimum Balance Amount. RIME Holdings executed a guaranty of the obligations outstanding under the Second Pre-Paid Purchase for the benefit of Streeterville. The Company entered into a new placement agency agreement with Univest that superseded the placement agency agreement that the Company previously entered into with them on August 21, 2025. The Company agreed to pay Univest a cash fee equal to eight percent of the aggregate gross proceeds that the Company receives from any Pre-Paid Purchases that the Company completes and reimburse Univest for legal fees in the amount of $ 50,000 . During the year ended December 31, 2025, the Company repaid an aggregate principal amount of $ 538,000 under the Second Pre-Paid Purchase as a result of Streeterville exercising its right to purchase an aggregate of 421,770 shares of the Company’s common stock, and recognized $ 61,000 of interest expense associated with the Second Pre-Paid Purchase. As of December 31, 2025, the outstanding principal balance of the Second Pre-Paid Purchase was $ 4,912,000 , which is reflected in the consolidated balance sheets net of unamortized issuance costs of $ 431,000 . Pre-Paid Purchase #3 On December 19, 2025, the Company entered into Secured Pre-Paid Purchase #3 with Streeterville (“Pre-Paid Purchase #3”). Pre-Paid Purchase #3 provides for a third Pre-Paid Purchase in the principal amount of $ 1,090,000 , before deducting an original issue discount of $ 90,000 (the “Third Pre-Paid Purchase”). The Third Pre-Paid Purchase accrues interest at the rate of nine percent per annum and has a maturity date of three years. The Company paid Univest a cash fee equal to eight percent of the aggregate gross proceeds received from the Third Pre-Paid Purchase. F- 37 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 During the year ended December 31, 2025, the Company repaid an aggregate principal amount of $ 99,000 under the Third Pre-Paid Purchase as a result of Streeterville exercising its right to purchase an aggregate of 83,901 shares of the Company’s common stock, and recognized $ 3,000 of interest expense associated with the Third Pre-Paid Purchase. As of December 31, 2025, the outstanding principal balance of the Third Pre-Paid Purchase was $ 991,000 , which is reflected in the consolidated balance sheets net of unamortized issuance costs of $ 168,000 . Additional information related to the Streeterville Transaction is presented in Note 20 – Subsequent Events . Note 13 – Derivative Liability During the years ended December 31, 2025 and 2024, 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: Schedule of Derivative Warrant Liabilities Warrant Liability – Series A Warrants Issuance Date December 31, 2024 January 13, 2025 Stock price on valuation date $ 18.00 $ 18.00 $ 8.38 Exercise price $ 34.00 $ 34.00 $ 8.38 Number of shares of common stock 279,412 279,412 1,113,652 Remaining term (years) 5.00 4.93 4.88 Annual equity volatility 113.0 % 114.0 % 126.00 % Annual volume volatility 377.0 % 379.0 % 377.00 % Risk-free interest rate 3.95 % 4.29 % 4.32 % Expected stockholder approval date January 14, 2025 January 14, 2025 January 13, 2025 Expected stockholder approval probability 50 % 50 % 100 % Warrant Liability – Series B Warrants Issuance Date December 31, 2024 Stock price on valuation date $ 18.00 $ 18.00 Exercise price $ 68.00 $ 68.00 Number of shares of common stock 279,412 279,412 Remaining term (years) 2.50 2.43 Annual equity volatility 126.0 % 120.0 % Annual volume volatility 409.0 % 416.0 % Risk-free interest rate 4.00 % 4.17 % Expected stockholder approval date January 14, 2025 January 14, 2025 Expected stockholder approval probability 50 % 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. F- 38 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 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 year ended December 31, 2025. The following table details the Company’s financial instruments that are required to be remeasured at fair value on a recurring basis and their fair value hierarchy as of December 31, 2024: Schedule of Fair Value on a Recurring Basis December 31, 2024 Level 1 Level 2 Level 3 Liabilities Warrant liabilities $ — $ — $ 16,603,000 Total liabilities $ — $ — $ 16,603,000 The Company did not have any warrant liabilities outstanding at December 31, 2025. The following table provides a roll-forward of the fair value of the derivative liabilities described above during the year ended December 31, 2025 and 2024: Schedule of Fair Value of the Derivative Liabilities Series A Warrants Series B Warrants Total Warrant Liabilities Balance at December 31, 2023 $ — $ — $ — Issuances 5,901,000 11,036,000 16,937,000 Exercises — — — Loss (gain) on change in fair value ( 445,000 ) 111,000 ( 334,000 ) Balance at December 31, 2024 $ 5,456,000 $ 11,147,000 $ 16,603,000 Balance $ 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 Reclassification to equity ( 7,857,000 ) — ( 7,857,000 ) Balance at December 31, 2025 $ — $ — $ — Balance $ — $ — $ — The following table provides a roll-forward of the number of warrants issued during the years ended December 31, 2025 and 2024: Schedule of Shares of Common Stock Underlying Warrants Pre-Funded Warrants Series A Warrants Series B Warrants Other Warrants Total Balance at December 31, 2023 — — — 4,511 4,511 Issuances 258,412 279,412 279,412 — 817,236 Exercises ( 258,412 ) — — — ( 258,412 ) Balance at December 31, 2024 — 279,412 279,412 4,511 563,335 Issuances — — — — — Exercises — — ( 279,412 ) — ( 279,412 ) Balance at December 31, 2025 — 279,412 — 4,511 283,923 The Company did not issue any warrants during the year ended December 31, 2025. F- 39 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Note 14 – Income Taxes The Company’s loss before income taxes for the years ended December 31, 2025 and 2024 is as follows: Schedule of Loss Before Income Taxes December 31, 2025 December 31, 2024 Year ended December 31, 2025 December 31, 2024 United States $ ( 14,513,000 ) $ ( 24,414,000 ) Foreign ( 2,012,000 ) 47,000 Loss before income taxes $ ( 16,525,000 ) $ ( 24,367,000 ) The Company did not have any provision for income taxes for the years ended December 31, 2025 and 2024. The Company’s net deferred tax assets as of December 31, 2025 and 2024 are as follows: Schedule of Deferred Tax Assets and Liabilities December 31, 2025 December 31, 2024 NOL Federal carryforward $ 6,491,000 $ 4,085,000 State NOL carryforward 2,235,000 1,426,000 Inventory differences - 355,000 Impairment of goodwiIll - SemiCab, Inc. 614,000 674,000 Stock option compensation expense 197,000 179,000 Intangibles 136,000 253,000 ROU liability - 14,000 Section 163(j) 853,000 694,000 Allowance for doubtful accounts 31,000 40,000 Warrant liability 1,687,000 - Reserve for estimated returns - 476,000 Accrued vacation - 19,000 Deferred tax assets gross 12,244,000 8,215,000 Less: valuation allowance ( 12,209,000 ) ( 8,039,000 ) Deferred tax asset 35,000 176,000 Depreciable and amortizable assets - ( 39,000 ) ROU asset - ( 14,000 ) Warrant liability - ( 92,000 ) Prepaid expenses ( 35,000 ) ( 31,000 ) Deferred tax liability ( 35,000 ) ( 176,000 ) Net deferred tax $ - $ - The Company recognizes federal, state and foreign current tax liabilities or assets based on its estimate of taxes payable to or refundable by tax authorities in the current fiscal year. The Company also recognizes federal, state and foreign deferred tax liabilities or assets based on the Company’s estimate of future tax effects attributable to temporary differences and carryforwards. The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized. F- 40 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 The Company performed an analysis in accordance with the provisions of ASC 740, which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. The analysis performed to assess the realizability of the deferred tax assets included an evaluation of the pattern and timing of the reversals of temporary differences and the length of carryback and carryforward periods available under the applicable federal, state and foreign laws; and the amount and timing of future taxable income. T he Company evaluated the realizability of its deferred tax assets as of December 31, 2025 and 2024 in accordance with accounting principles generally accepted in the United States of America and concluded that a valuation allowance against all of the Company’s deferred tax assets was necessary based upon the Company’s conclusions regarding, among other considerations, the Company’s recent history of losses and projected losses for fiscal year 2026 and in the future. The Company’s income tax expense differs from the amount computed due to the application of the U. S . federal statutory tax ra t e o f 21 % to loss b e f o re income ta x es as f o ll o w s : Schedule of Effective Income Tax Rate Reconciliation Amount % Pre- ASU 2023-09 Adoption Year ended December 31, 2025 Amount % U.S. Federal statutory income tax rate ( 3,471,000 ) 21.0 % State and local income taxes, net of federal benefit ( 1,075,000 ) 6.5 % Permanent differences: - Meals & Entertainment 6,000 0.0 % Permanent difference gain on sale of SMH ( 233,000 ) 1.4 % Foreign tax rate differential 601,000 ( 3.6 )% Change in valuation allowance 4,170,000 ( 25.2 )% Other ( 45,000 ) 0.3 % Income tax loss $ ( 47,000 ) 0.3 % Pre- ASU 2023-09 Adoption Year ended December 31, 2024 Expected tax expense (benefit) $ ( 5,117,000 ) State income taxes, net of federal income tax effect ( 1,574,000 ) Permanent differences ( 441,000 ) Permanent difference loss on issuance of warrants 2,441,000 Tax rate differential on foreign earnings 13,000 Change in valuation allowance 4,428,000 Other 250,000 Actual tax (benefit) provision $ - At December 31, 2025, the Company had federal tax net operating loss carryforwards in the amount of $ 30,911,000 that begin to expire in the year 2026. The net operating loss carryforward is subject to an IRS Section 382 limitation that limited the amount available to use beginning in fiscal 2020 to $ 150,000 per year. In addition, the Company had state tax net operating loss carryforwards in the amount of $ 36,908,000 that will begin to expire in 2026. These tax net operating loss carryforwards may be subject to further adjustment based on future changes in ownership. At December 31, 2025, the Company evaluated the realizability of its deferred tax assets in accordance with GAAP and concluded that a valuation allowance of $ 12,209,000 against deferred tax assets is necessary. The change in valuation allowance increased $ 4,170,000 to $ 12,209,000 as of December 31, 2025 from $ 8,039,000 as of December 31, 2024. The recognition of the remaining net deferred tax asset and corresponding tax benefit is based upon the Company’s conclusions regarding, among other considerations, the Company’s current and anticipated customers, contracts and product introductions, and recent operating results. F- 41 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 The Company’s policy is to recognize interest or penalties related to income tax matters in the provision for income taxes. The Company currently has no liabilities recorded for accrued interest or penalties and does not have any liabilities recorded related to uncertain tax positions. Note 15 – Segment Information and Revenue Disaggregation Segment Information In accordance with ASC 280, Segment Reporting, an operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, for which discrete financial information is available, and whose operating results are regularly reviewed by the CODM in allocating resources and assessing performance. Prior to August 1, 2025, the CODM determined that the Company operated in two reportable segments: (i) the SemiCab business, and (ii) the Singing Machine business. On August 1, 2025, the Company completed the sale of its Singing Machine business. Upon the completion of this transaction, the Company began operating as a single reportable segment consisting of its SemiCab business. As a result of the sale, the operating results and cash flows of the Singing Machine business have been reclassified as discontinued operations for all periods presented in the consolidated financial statements. Additional information regarding the discontinued operations is provided in Note 19 – Discontinued Operations . The Company’s CODM reviews consolidated operating results including net sales, gross profit, loss from operations, and net loss from continuing operations, as presented in the consolidated statements of operations. The CODM also considers consolidated operating expenses, non-financial information, and qualitative factors in evaluating performance, monitoring budgeted to actual results, and making decisions regarding capital allocation and levels of investment in operating activities. The CODM does not review segment asset information for purposes of allocating resources. Geographic Information Revenue is attributed to geographic areas based on the location where services are rendered. For the year ended December 31, 2025, substantially all of the Company’s revenues were generated from customers located in India. For the year ended December 31, 2024, all of the Company’s revenues were generated from customers located in the United States. F- 42 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Notes 16 – Concentrations, Risks and Uncertainties Bank Liquidity and Financial Stability At times, the Company maintains cash in United States bank accounts that are more than the Federal Deposit Insurance Corporation insured amounts. The Company maintains cash balances in foreign financial institutions. The Company regularly monitors the financial stability of this financial institution and believes that it is not exposed to any significant credit risk in cash and cash equivalents. However, in March and April 2023, certain U.S. government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened uncertainties in financial markets. While these events have not had a material direct impact on the Company’s operations, if further liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions, the Company’s ability to access cash or enter into new financing arrangements may be threatened, which could have a material adverse effect on its business, financial condition and results of operations. Revenue Concentration The Company derives a majority of its revenue from sales of its AI-enabled software logistics services in India. The Company’s allowance for credit losses is based upon management’s estimates and historical experience and reflects the fact that accounts receivable is concentrated with several large customers. As of December 31, 2025, 58 % of accounts receivable were due from three customers in India that each individually owed more than 10% of the Company’s total accounts receivable. At December 31, 2024, no customer individually owed more than 10% of the Company’s total accounts receivable. Revenue derived from the Company’s largest customer and three largest customers collectively as a percentage of total net sales was 32 % and 72 % of the Company’s revenue, respectively, for the year ended December 31, 2025. The loss of any of these customers could have an adverse impact on the Company. Note 17 – Related Party Transactions Stingray Holdings Music Subscription Agreement The Company has a music subscription sharing agreement with Stingray Group under which the Company generated music subscription revenue of $ 64,000 and $ 780,000 during the years ended December 31, 2025 and 2024, respectively. This revenue was included in net loss from discontinued operations on the Company’s consolidated statements of operations for the years ended December 31, 2025 and 2024. As of December 31, 2025 and 2024, the Company had $ 0 and $ 212,000 , respectively, due from Stingray Group for music subscription reimbursement. These accounts receivable were included in current assets of discontinued operations in the Company’s consolidated balance sheets as of December 31, 2024. Mathieu Peloquin is the Senior Vice-President, Marketing and Communications of Stingray Group and served as a member of the Company’s board of directors until October 6, 2025 . F- 43 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 SMCB VIE Analysis The Company determined that SMCB, which was a subsidiary of SemiCab, Inc. prior to SemiCab Holdings’ acquisition of 99.99 % of the equity shares of SMCB on May 2, 2025, was a VIE as the Company provides financial support to SMCB. While not contractually obligated, SMCB currently relies on the Company’s reimbursement of certain costs under an intercompany services agreement (“MSA”) whereby SMCB agrees to provide IT software development services to SemiCab, Inc. In exchange, under the MSA, the Company grants intellectual property rights to SMCB to use the software platform in India. Compensation for services is invoiced and paid on a monthly or quarterly basis as agreed by both parties, with rates subject to periodic review and revision. The agreement is for a term of two years ending on April 1, 2025 and automatically renews for additional 12-month periods unless prior notice is given by the terminating party. The agreement automatically renewed for an additional 12-month period on April 1, 2025. As a result of this relationship and the financial support provided by the Company to SMCB under the loan agreement described below to fund SMCB’s operations, SMCB has been determined to be a VIE prior to May 2, 2025. The Company further determined that it was not the primary beneficiary of SMCB because the Company did 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 condensed consolidated financial statements prior to May 2, 2025. Pursuant to the terms of the asset purchase agreement that the Company entered into on June 11, 2024, the Company entered into an option agreement that granted SemiCab Holdings the right to acquire all of the issued and outstanding equity securities of SMCB for 1,605 shares of the Company’s common stock. The Company did not exercise this right and the option agreement expired on August 31, 2024. Loan Agreement The Company is a party to a loan agreement with SMCB dated March 22, 2024. Under the loan agreement, the Company agreed to loan up to $ 2,500,000 to SMCB. The loans are anticipated to be made in tranches. Disbursements of any tranches are fully at the discretion of the Company. Each tranche has a repayment period of five years. The loans can be repaid at any time prior to the five-year maturity date without penalty. Interest on the loans accrues at a rate of six percent per year and is payable quarterly. At December 31, 2024, a total of $ 1,140,000 was outstanding under the loan agreement. During the period beginning January 1, 2025 and ending May 2, 2025, the date the Company acquired 99.99 % of the equity shares of SMCB, the Company made advances to SMCB in the amount of $ 1,172,000 . During the same period, SMCB charged $ 304,000 for services to the Company that were performed under the MSA, which charges offset amounts due under the loan with SMCB. As a result, as of May 2, 2025, a total of $ 2,008,000 of loans were outstanding under the loan agreement, and a total of $ 492,000 remained available for future borrowings under the loan agreement as of May 2, 2025. As of May 2, 2025, SMCB had not made any interest payments due under the loan agreement. As a result, the loans were in default as of May 2, 2025. F- 44 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 On May 2, 2025, the loan payable of $ 2,008,000 of SMCB and the loan receivable of $ 2,008,000 of the Company were eliminated in consolidation. As a result, no such loans payable and loans receivable were outstanding on the Company’s condensed consolidated balance sheet at December 31, 2025. Also on May 2, 2025, revenue generated by SMCB for services performed by SMCB under the MSA of $ 304,000 , and expenses for the Company for services performed by SMCB under the MSA of $ 304,000 , during the period commencing January 1, 2025 and ending May 2, 2025 were eliminated in consolidation on May 2, 2025. As a result, no such revenue and expenses were reflected on the Company’s condensed consolidated statements of operations for the year ended December 31, 2025 and 2024. Note 18 – Acquisition of SMCB On May 2, 2025, the Company 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 the Company to the SemiCab, Inc., and (ii) the Company purchased the 20 % membership interest in SemiCab Holdings then held by SemiCab, Inc. for aggregate consideration consisting of 119,742 shares of the Company’s common stock. The acquisition was completed on May 2, 2025 (the “Closing Date”). The promissory note provides that $ 1,500,000 is due and payable by the Company on the first anniversary of the Closing Date and the remaining $ 250,000 is due and payable by the Company on the 18-month anniversary of the Closing Date. The promissory note bears interest at six percent per annum. The Company completed the acquisition to expand its AI logistics and distribution into India. On the Closing Date, the Company 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 of 15 % and five percent, respectively. Of these amounts, one quarter of each such grant vested in full on the date of grant, and the remaining amounts vest evenly over three years. The following table summarizes the allocation of the purchase price as May 2, 2025, the date the acquisition was completed: Schedule of Business Acquisition Consideration: Promissory note $ 1,750,000 119,742 shares of common stock 316,000 Assumption of debt 2,008,000 Total $ 4,074,000 Identifiable net tangible assets acquired: Cash and cash equivalents $ 593,000 Accounts receivable, net 319,000 Prepaid expenses and other current assets 377,000 Property and equipment, net 11,000 Other non-current assets 128,000 Accounts payable, accrued expenses and other liabilites ( 731,000 ) Net tangible assets acquired $ 697,000 Identifiable intangible assets acquired: Customer relationships $ 1,007,000 Reacquired rights 294,000 Trade name 180,000 Net intangible assets acquired $ 1,481,000 Net assets acquired $ 2,178,000 Goodwill $ 1,896,000 F- 45 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Pro Forma Information The unaudited pro forma financial information below presents the effects of the acquisition as though it had been completed on January 1, 2024. The pro forma adjustments are derived from the historically reported transactions of the respective companies. The pro forma results do not include anticipated combined effects or other expected benefits of the acquisition. The pro forma results for the year ended December 31, 2025 and 2024 reflect the combined performance of the Company and the SMCB business for that period. The unaudited pro forma information is based on available data and certain assumptions that the Company believes are reasonable given the circumstances. However, actual results may differ materially from the assumptions used in the accompanying unaudited pro forma financial information. This selected unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not intended to represent what the actual consolidated results of operations would have been had the acquisition date occurred on January 1, 2024, nor does it attempt to forecast future consolidated results of operations. Schedule of Pro Forma Financial Information December 31, 2025 December 31, 2024 Year ended December 31, 2025 December 31, 2024 Net revenue $ 8,394,527 $ 6,432,000 Operating loss from continuing operations ( 11,215,915 ) ( 16,092,000 ) Net loss $ ( 25,251,915 ) $ ( 26,535,000 ) Additional information on the acquisition of SMCB is presented in Note 20 – Subsequent Events . Note 19 – Discontinued Operations On August 1, 2025, the Company 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 the Company’s Singing Machine business for $500,000. The transaction closed on August 1, 2025. The Company 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 represented a strategic shift that will have a significant effect on the Company’s operations and financial results. Accordingly, the consolidated balance sheets, the consolidated statements of operations and the consolidated statement of cash flows have been adjusted for prior periods to reflect the Singing Machine business as a discontinued operation. F- 46 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 The following table summarizes the results of the Singing Machine business as a discontinued operation in the consolidated statements of operations for the years ended December 31, 2025 and 2024: Schedule of Discontinued Operation Income Statement, Assets and Liabilities in the Condensed Consolidated Statements of Operations December 31, 2025 December 31, 2024 For the Year Ended December 31, 2025 December 31, 2024 Net Sales $ 4,019,000 $ 23,197,000 Cost of Goods Sold 2,033,000 18,222,000 Gross Profit 1,986,000 4,975,000 Operating Expenses Selling expenses 1,098,000 2,874,000 General and administrative expenses 2,429,000 7,584,000 Total Operating Expenses 3,527,000 10,458,000 Loss From Operations ( 1,541,000 ) ( 5,483,000 ) Other Expenses Gain on sale of Singing Machine business 179,000 - Total Other Expenses 179,000 - Loss Before Income Tax Benefit ( 1,362,000 ) ( 5,483,000 ) Income Tax - - Net Loss From Discontinued Operations $ ( 1,362,000 ) $ ( 5,483,000 ) F- 47 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 The following table summarizes the assets and liabilities of the Singing Machine business as a discontinued operation in the consolidated balance sheet for the year ended December 31, 2024: December 31, 2024 Assets Current Assets Cash $ 317,000 Accounts receivable, net 4,252,000 Accounts receivable, related party 212,000 Accounts receivable 212,000 Inventory 2,186,000 Returns asset 1,621,000 Prepaid expenses and other current assets 61,000 Total Current Assets of Discontinued Operations $ 8,649,000 Property and equipment, net 282,000 Other non-current assets 124,000 Total Non-Current Assets of Discontinued Operations $ 406,000 Liabilities Current Liabilities Accounts payable $ 3,421,000 Accrued expenses 2,478,000 Refund due to customer 38,000 Reserve for sales returns 3,355,000 Other current liabilities 95,000 Total Current Liabilities of Discontinued Operations $ 9,387,000 There are no assets or liabilities of the discontinued operations as of December 31, 2025. The following table summarizes the cash flows of the Singing Machine business as a discontinued operation in the consolidated statements of cash flows for the years ended December 31, 2025 and 2024: December 31, 2025 December 31, 2024 For the Year Ended December 31, 2025 December 31, 2024 Net cash used in operating activities $ ( 2,539,000 ) $ ( 5,080,000 ) Net cash provided by investing activities 845,000 122,000 Net cash provided by financing activities - - Total cash used in discontinued operations $ ( 1,694,000 ) $ ( 4,958,000 ) Note 20 – Subsequent Events Streeterville Capital Transaction Pre-Paid Purchase #1 Between January 1, 2026 and March 13, 2026, the Company repaid outstanding principal in the amount of $ 3,305,000 under the First Pre-Paid Purchase as a result of Streeterville exercising its right to purchase an aggregate of 3,218,166 shares of the Company’s common stock. The current outstanding balance of the First Pre-Paid Purchase is $ 1,085,000 . F- 48 ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2025 and 2024 Pre-Paid Purchase #2 Between January 1, 2026 and February 13, 2026, the Company repaid outstanding principal in the amount of $ 4,912,000 under the Second Pre-Paid Purchase as a result of Streeterville exercising its right to purchase an aggregate of 6,447,017 shares of the Company’s common stock. The Second Pre-Paid Purchase was repaid in full on February 13, 2026. Pre-Paid Purchase #3 Between January 1, 2026 and January 7, 2026, the Company repaid outstanding principal in the amount of $ 991,000 under the Third Pre-Paid Purchase as a result of Streeterville exercising its right to purchase an aggregate of 1,132,410 shares of the Company’s common stock. The Third Pre-Paid Purchase was repaid in full on January 7, 2026. Pre-Paid Purchase #4 On February 17, 2026, the Company entered into Secured Pre-Paid Purchase #4 with Streeterville (“Pre-Paid Purchase #4”). Pre-Paid Purchase #4 provides for a fourth Pre-Paid Purchase in the principal amount of $ 10,355,000 , before deducting an original issue discount of $ 855,000 (the “Fourth Pre-Paid Purchase”). The Fourth Pre-Paid Purchase accrues interest at the rate of nine percent per annum and has a maturity date of three years. The Fourth Pre-Paid Purchase is similar to the Second Pre-Paid Purchase in that the Fourth Pre-Paid Purchase is secured by cash in an amount not less than the lesser of: (i) $ 3,500,000 , and (ii) 90 % of the then-current outstanding balance of the Fourth Pre-Paid Purchase (the “PPP4 Minimum Balance Amount”). Accordingly, of the $ 9,500,000 in proceeds that the Company received from the Fourth Pre-Paid Purchase, $ 3,500,000 was placed in the DACA Account. The Company has the right to use funds in the DACA Account to repay any portion of the outstanding balance of the Fourth Pre-Paid Purchase, but only so long as the payment does not cause the outstanding balance to drop below the PPP4 Minimum Balance Amount. As long as no event of default has occurred, the Company may withdraw from the Deposit Account any funds in excess of the PPP4 Minimum Balance Amount. RIME Holdings executed a guaranty of the obligations outstanding under the Fourth Pre-Paid Purchase for the benefit of Streeterville. The Company paid Univest a cash fee equal to eight percent of the aggregate gross proceeds received from the Fourth Pre-Paid Purchase that were not placed in the DACA Account. The Company will pay Univest a cash fee equal to eight percent of the funds held in the DACA Account when they are released to the Company. The Company has not repaid any of the principal outstanding under the Fourth Pre-Paid Purchase. Acquisition of SMCB In January 2026, the Indian government approved the purchase by SemiCab Holdings of the remaining outstanding equity share in SMCB, representing 0.01 % of the issued and outstanding equity shares of SMCB, from Sudheer Srinivas Kadandale for $ 10 . F- 49