Algorhythm Holdings, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this report contain forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “momentum,” “seeks,” “estimates,” “continues,” “endeavors,” “strives,” “may,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those set forth under Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2025 and elsewhere therein and in this report. Our actual results may differ materially from those anticipated in these forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason, except as required by law. The following should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this report and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2025. Overview We are an AI technology company focused on the growth and development of SemiCab. SemiCab is an AI-enabled software logistics and distribution business that utilizes our SemiCab technology platform to enable retailers, brands and transportation providers to address common supply chain problems globally. We operate our SemiCab business through our subsidiary, SemiCab Holdings. Prior to August 1, 2025, we 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 our subsidiary, The Singing Machine Company, Inc. We sold our Singing Machine business on August 1, 2025. Accordingly, we no longer own or operate the Singing Machine business. SemiCab SemiCab is an AI-enabled, cloud-based collaborative transportation platform built to achieve the scalability required to predict and optimize loads and the use of trucks. To orchestrate collaboration across manufacturers, retailers, distributors, and their carriers, SemiCab uses real-time data from API-based load tendering and pre-built integrations with TMS and ELD partners. To build fully loaded round trips, SemiCab uses AI/ML techniques and advanced predictive optimization models. 37 Since 2020, SemiCab has enabled major retailers, brands and transportation providers to address their transportation needs. SemiCab’s Orchestrated Collaboration™ AI model has proven to increase transportation capacity, improve asset utilization, reduce empty miles, lower logistics costs, and provide visibility into the entire transportation network. Models show that our SemiCab technology has the capability of reducing costs through optimization. Additionally, our SemiCab technology has the potential to play a key role in the improved sustainability model. Based on our proven ability to improve truck utilization rates, this could result in a dramatic reduction in the carbon footprint of the industry. The optimization of existing truck utilization can add trucking capacity without adding more trucks, drivers or driven miles which addresses common problems plaguing the industry like severe driver shortage and road congestion. Trucking optimization could also reduce carbon emissions attributable to road freight. Singing Machine Through Singing Machine, we engaged in the development, marketing, and sale of consumer karaoke audio equipment, accessories, and musical recordings. We were a leading global karaoke and music entertainment company that specializes in the design and production of quality karaoke and music enabled consumer products for adults and children. Our products were among the most widely available karaoke products internationally. We sold our Singing Machine business on August 1, 2025. Accordingly, we no longer own or operate the Singing Machine business line. Financial Results We generated net sales of $3,005,000 for the three-month period ended June 30, 2026, compared to $1,152,000 for the three months ended June 30, 2025. The increase in net sales was due primarily to the addition of net sales generated by our SemiCab business resulting from our acquisition of SMCB on May 2, 2025. Cost of sales was $3,598,000 for the three months ended June 30, 2026, compared to $1,492,000 for the three months ended June 30, 2025. The increase in cost of sales was due primarily to the addition of freight, handling and servicing costs incurred by SMCB resulting from our acquisition of SMCB on May 2, 2025. Our operating expenses were $2,108,000 for the three months ended June 30, 2026, compared to $868,000 for the three months ended June 30, 2025. The increase in operating expenses was due primarily to the increase in general and administrative expenses incurred in the growth and development of our SemiCab business during the three months ended June 30, 2026. We generated net loss from continuing operations of $4,149,000 for the three months ended June 30, 2026, compared to a loss of $1,235,000 for the three months ended June 30, 2025. The increase in the net loss from continuing operations was mainly due to administrative expenses incurred in the growth and development of our SemiCab business and the interest expense incurred by us on the pre-paid purchases under the Streeterville Transaction. We had total assets of $18,568,000 and $12,724,000 at June 30, 2026 and December 31, 2025, respectively. Net cash used in operating activities attributable to continuing operations was $6,592,000 for the six months ended June 30, 2026, compared to $3,106,000 for the six months ended June 30, 2025. 38 Comparison of the Three-Month Periods Ended June 30, 2026 and 2025 Net Sales Net sales consist of sales generated by our SemiCab business. Net sales increased $1,853,000 to $3,005,000 for the three-month period ended June 30, 2026, compared to $1,152,000 for the three-month period ended June 30, 2025. The increase in net sales was due primarily to the addition of net sales generated by SMCB, which we acquired on May 2, 2025. Cost of Sales Cost of sales consists primarily of freight, handling and servicing costs that we incur in connection with our SemiCab business. Cost of sales increased $2,106,000 to $3,598,000 for the three-month period ended June 30, 2026, compared to $1,492,000 for the three-month period ended June 30, 2025. The increase in cost of sales was due primarily to the addition of freight, handling and servicing costs incurred by SMCB, which we acquired on May 2, 2025. Operating Expenses Operating expenses consist of selling expenses and general and administrative expenses. Selling Expenses Selling expenses consist primarily of marketing and advertising activities that we engage in from time to time in connection with our SemiCab business. Selling expenses were $49,000 for the three-month period ended June 30, 2026. We did not incur any selling expenses for the three-month period ended June 30, 2025. General and Administrative Expenses General and administrative expenses consist primarily of compensation expense, legal and accounting expenses, and other corporate expenses. General and administrative expenses increased $1,191,000 to $2,059,000 for the three-month period ended June 30, 2026, compared to $868,000 for the three-month period ended June 30, 2025. The increase was due primarily to increases in expenses incurred in connection with the operation of our SemiCab business. Other Expenses Other expenses consist primarily of interest expense, including the amortization of deferred debt costs, incurred in connection with our financing transactions, as well as the loss on debt extinguishment related to the exchange of the partitioned pre-paid purchase for the Series A preferred stock. Other expenses increased $1,418,000 to $1,445,000 for the three-month period ended June 30, 2026, compared to $27,000 for the three-month period ended June 30, 2025. The increase was attributable to an increase of $1,018,000 increase in interest expense, including the amortization of deferred debt costs, associated with our recent financing transactions, and a $400,000 loss on debt extinguishment recognized in connection with the exchange of the partitioned pre-paid purchase for the Series A preferred stock during the three-month period ended June 30, 2026. 39 Net Loss Attributable to Non-Controlling Interest SemiCab Holdings owns our SemiCab business. Net loss attributable to non-controlling interest consists of the loss allocated to SemiCab, Inc., which owned a 20% of the outstanding membership interests of SemiCab Holdings until May 2, 2025, and Ajesh Kapoor and Vivek Sehgal, who collectively owned 20% of the outstanding membership interests of SemiCab Holdings beginning May 2, 2025. The net loss attributable to non-controlling interest of $320,000 for the three-month period ended June 30, 2026 represents the amount of loss incurred by SemiCab Holdings that was allocated to Ajesh Kapoor and Vivek Sehgal through their collective 20% membership interest in SemiCab Holdings. The net loss attributable to non-controlling interest of $224,000 for the three-month period ended June 30, 2025 represents the amount of loss incurred by SemiCab Holdings that was allocated to SemiCab, Inc. between January 1, 2025 and May 2, 2025, and to Ajesh Kapoor and Vivek Sehgal between May 2, 2025 and June 30, 2025. Comparison of the Six-Month Periods Ended June 30, 2026 and 2025 Net Sales Net sales increased $4,130,000 to $5,405,000 for the six-month period ended June 30, 2026, compared to $1,275,000 for the six-month period ended June 30, 2025. The increase in net sales was due primarily to the addition of net sales generated by SMCB, which we acquired on May 2, 2025 Cost of Goods Sold Cost of sales increased $5,054,000 to $6,675,000 for the six-month period ended June 30, 2026, compared to $1,621,000 for the six-month period ended June 30, 2025. The increase in cost of sales was due primarily to the addition of freight, handling and servicing costs incurred by SMCB, which we acquired on May 2, 2025. Operating Expenses Selling Expenses Selling expenses were $82,000 for the six-month period ended June 30, 2026. We did not incur any selling expenses for the six-month period ended June 30, 2025. General and Administrative Expenses General and administrative expenses increased $3,769,000 to $5,693,000 for the six-month period ended June 30, 2026, compared to $1,924,000 for the six-month period ended June 30, 2025. The increase was due primarily to increases in expenses incurred in connection with the operation of our SemiCab business and stock-based compensation expense. Other Expenses Other expenses decreased $4,030,000 to $2,481,000 for the six-month period ended June 30, 2026, compared to $6,511,000 for the six-month period ended June 30, 2025. The decrease was due primarily to the loss of $6,468,000 on the change in fair value of warrants that we incurred during the six-month period ended June 30, 2025 in connection with the public offering of securities that we completed on December 6, 2024, partially offset by the interest expense, including the amortization of deferred debt cost, associated with our recent financing transactions. 40 Net Loss Attributable to Non-Controlling Interests The net loss attributable to non-controlling interest of $594,000 for the six-month period ended June 30, 2026 represents the amount of loss incurred by SemiCab Holdings that was allocated to Ajesh Kapoor and Vivek Sehgal through their collective 20% membership interest in SemiCab Holdings. The net loss attributable to non-controlling interest of $327,000 for the six-month period ended June 30, 2025 represents the amount of loss incurred by SemiCab Holdings that was allocated to SemiCab, Inc. between January 1, 2025 and May 2, 2025, and to Ajesh Kapoor and Vivek Sehgal between May 2, 2025 and June 30, 2025. Liquidity And Capital Resources Since our inception, we have funded our operations primarily through cash generated by our operations, private sales of equity securities and the use of short- and long-term debt. As of June 30, 2026, our cash and restricted cash balance was $7,955,000. Net cash used in operating activities attributable to continuing operations was $6,592,000 during the six-month period ended June 30, 2026, compared to $3,106,000 during the six-month period ended June 30, 2025. The increase of $3,486,000 was due primarily to decreases of $6,468,000 for loss on the change in fair value of warrants recognized in connection with the public offering of securities that we completed on December 6, 2024, and $2,550,000 for prepaid expenses and other current assets. These decreases were partially offset by increases of $1,482,000 for the amortization of debt discount and issuance costs and $2,754,000 for accounts payable and accrued expenses. Net cash used in investing activities attributable to continuing operations was $267,000 during the six-month period ended June 30, 2026, compared to $1,344,000 during the six-month period ended June 30, 2025. The decrease of $1,077,000 was due primarily to decreases of $1,172,000 for advances to SMCB under our loan agreement with them and $758,000 for repurchases of shares of our common stock, partially offset by a decrease of $593,000 for cash received in connection with our acquisition of SMCB on May 2, 2025 and an increase of $248,000 for the capitalization of internal use software costs Net cash provided by financing activities attributable to continuing operations was $8,668,000 for the six-month period ended June 30, 2026, compared to $379,000 during the six-month period ended June 30, 2025. The increase of $8,289,000 was due primarily to net proceeds of $9,020,000 that we received from Streeterville under the Fourth Pre-Paid Purchase. Our limited cash resources along with our recent history of recurring operating losses and decreases in working capital create substantial doubt about our ability to continue as a going concern. To date, our capital needs have been met through cash generated by our operations, sales of our equity securities and the use of short- and long-term debt to fund our operations. We have used these sources of capital to pay virtually all of the costs and expenses that we have incurred to date. These costs and expenses have been comprised primarily of the professional fees, employee compensation expenses, and general and administrative expenses discussed above. We intend to continue to rely upon each of these sources to fund our operations and expansion efforts, including additional acquisitions of controlling or non-controlling financial interests in other complementary businesses and companies during the next 12 months . 41 We can provide no assurance that these sources of capital will be adequate to fund our operations and expansion efforts during the next 12 months. If these sources of capital are not adequate, we will need to obtain additional capital through alternative sources of financing. We may attempt to obtain additional capital through the sale of equity securities or the issuance of short- and long-term debt. If we raise additional funds by issuing shares of our common stock, our stockholders will experience dilution. If we raise additional funds by issuing securities exercisable or convertible into shares of our common stock, our stockholders will experience dilution in the event the securities are exercised or converted, as the case may be, into shares of our common stock. Debt financing may involve agreements containing covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, issuing equity securities, making capital expenditures for certain purposes or above a certain amount, or declaring dividends. In addition, any equity securities or debt that we issue may have rights, preferences and privileges senior to those of the shares of common stock held by our stockholders. We have not made arrangements to obtain additional capital and can provide no assurance that additional financing will be available in an amount or on terms acceptable to us, if at all. Our ability to obtain additional capital will be subject to a number of factors, including market conditions and our operating performance. These factors may make the timing, amount, terms and conditions of any proposed future financing transactions unattractive to us. If we cannot raise additional capital when needed, or if such capital cannot be obtained on acceptable terms, we may not be able to pay our costs and expenses as they are incurred, take advantage of future acquisition opportunities, respond to competitive pressures or unanticipated events, or otherwise execute upon our business plan. This may adversely affect our business, financial condition and results of operations and, in the extreme case, cause us to discontinue our operations. Nasdaq Compliance On December 30, 2024, we received notice from the Nasdaq indicating that the bid price for our common stock had closed below $0.10 per share for the 13-consecutive trading day period ended December 27, 2024 and, accordingly, we would be subject to the provisions contemplated under Nasdaq Listing Rule 5810(c)(3)(A)(iii) and our securities would be subject to delisting from Nasdaq unless we timely request a hearing before the Nasdaq hearings panel. On February 10, 2025, we implemented a 200-for-1 reverse stock split. On that day, the closing price of our common stock was $2.98 per share and the closing bid of our common stock remained above $1.00 for the next 10 consecutive business days. On March 25, 2025, we received a letter from the Nasdaq stating that we had regained compliance with the minimum bid price requirement of $1.00 per share for continued listing on the Nasdaq, as set forth in Nasdaq Listing Rule 5550(a)(2). On November 28, 2025, we received an additional letter from the Nasdaq indicating that our stockholders’ equity as reported in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2025, did not satisfy the continued listing requirement under Nasdaq Listing Rule 5550(b)(1), which requires that a listed company’s stockholders’ equity be at least $2,500,000. We reported a stockholders’ equity of approximately $100,000 on September 30, 2025 in that quarterly report. Pursuant to the listing rule and instructions from Nasdaq, we submitted a plan to regain compliance with the listing rule and were given an extension until May 27, 2026 to evidence compliance through a public filing. 42 On May 14, 2026, we filed our Quarterly Report on Form 10-Q for the period ended March 31, 2026 wherein we reported stockholders’ equity of $3,168,000. On May 21, 2026, we filed a Form 8-K where we stated that, as a result of the $3,168,000 of stockholders’ equity that we reported in that quarterly report, we believe that we had regained compliance with Nasdaq Listing Rule 5550(b)(1) for continued listing on the Nasdaq. On May 26, 2026, we received a letter from the Nasdaq notifying us that, based on our Form 8-K, dated May 21, 2026, the Nasdaq had determined that we complied with Nasdaq Listing Rule 5550(b)(1). On June 16, 2026, we received a letter from the Nasdaq notifying us that, based upon the closing bid price of our common stock for the 30 consecutive business days from May 4, 2026 to June 15, 2026, we did not meet the minimum bid price requirement of $1.00 per share set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. The letter stated that we have a compliance period of 180 calendar days, or until December 14, 2026, to regain compliance with the minimum bid price requirement. If at any time during this compliance period the closing bid price of our common stock is at least $1.00 per share for a minimum of 10 consecutive business days, the Nasdaq will provide us with written confirmation of compliance and the matter will be closed. The Nasdaq also stated that it may, in its discretion, require us to satisfy the minimum bid price requirement for a period in excess of 10 consecutive business days before determining that we have demonstrated an ability to maintain long-term compliance. We intend to actively monitor the closing bid price of our common stock and consider available options to regain compliance with the minimum bid price requirement, including such actions as effecting a reverse stock split of our common stock. If we are unable to meet the continued listing of the Nasdaq, our common stock could be subject to delisting. If our common stock is delisted from the Nasdaq, trading of our common stock most likely will be conducted in the over-the-counter market on an electronic bulletin board established for unlisted securities such as the OTC Markets or in the “pink sheets.” Such a downgrade in our listing market may adversely impact our ability to raise capital, limit our ability to make a market in our common stock, and adversely affect the market price and liquidity of our common stock. Off-Balance Sheet Arrangements As of June 30, 2026, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, that had been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. 43 Critical Accounting Estimates Our interim financial statements were prepared in accordance with United States generally accepted accounting principles, which require management to make subjective decisions, assessments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions increases, such judgements become even more subjective. While management believes that its assumptions are reasonable and appropriate, actual results may be materially different than estimated. Our critical accounting estimates and assumptions have not materially changed from those identified in our Annual Report on Form 10-K for the year ended December 31, 2025. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not required for small reporting companies.