Algorhythm Holdings, Inc. 10-K

Item 1. Business. Unless the context requires otherwise, references in this Annual Report to “we,” “us,” “our,” and Algorhythm refer to Algorhythm Holdings, Inc. and its consolidated subsidiaries. Unless otherwise expressly provided in this Annual Report, all historical per share data, number of shares issued and outstanding, stock awards, and other common stock equivalents set forth herein relating to our common stock have been adjusted to give effect to a reverse stock split of our common stock in a ratio of 1-for-200 effected on February 10, 2025. Overview We are an AI technology and consumer electronics holding company with two primary business units – SemiCab and Singing Machine. SemiCab is an artificial intelligence (“AI”) enabled software logistics business operated through our subsidiary, SemiCab Holdings, LLC. Singing Machine is a home karaoke consumer products business that designs and distributes karaoke products globally to retailers and ecommerce partners through our subsidiary, The Singing Machine Company, Inc. Our operations include our wholly-owned subsidiaries, SMC Logistics, Inc., a California corporation (“SMCL”), SMC-Music, Inc., a Florida corporation (“SMCM”), SMC (HK) Limited, a Hong Kong company (“SMH”), The Singing Machine Company, Inc., a Delaware corporation (“Singing Machine”), MICS Hospitality Holdings, Inc., a Delaware corporation (“MICS Hospitality”), MICS Hospitality Management, LLC, a Delaware limited liability company (“MICS Hospitality Management”), and MICS Nomad, LLC, a Delaware limited liability company (“MICS NY”), and our 80%-owned subsidiary, SemiCab Holdings, LLC, a Nevada limited liability company (“SemiCab Holdings”). 2 SemiCab SemiCab is a cloud-based Collaborative Transportation Platform built to achieve the scalability required to predict and optimize loads and the use of trucks. To orchestrate collaboration across manufacturers, retailers, distributors, and their carriers, SemiCab uses real-time data from AI-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. 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 the technology has the capability of reducing costs through optimization. Additionally, SemiCab’s technology has the potential to play a key role in the improved sustainability model. Based on its proven ability to improve truck utilization rates, this could result in a dramatic reduction in the carbon footprint of the industry. The optimization of existing truck utilization can add trucking capacity without adding more trucks, drivers or driven miles which addresses common problems plaguing the industry like severe driver shortage and road congestion. Trucking optimization could also reduce carbon emissions attributable to road freight. Singing Machine Through Singing Machine, we engage in the development, marketing, and sale of consumer karaoke audio equipment, accessories, and musical recordings. We are 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 are among the most widely available karaoke products internationally. Our mission is to “create joy through music.” To deliver on this mission, we are focused on a multi-prong approach. In the short-term, we seek to improve profitability by optimizing operations and continue to expand gross margins. In the mid-to-long-term, we seek to continue to expand our business into new verticals including automotive and connected-TV devices and grow our global distribution for our consumer karaoke products. Recent Events and Developments Change in Fiscal Year During 2023, our board of directors approved a change in our fiscal year end from March 31 to December 31. Asset Purchase On July 3, 2024, we completed the acquisition of substantially all of the assets and the assumption of certain liabilities of SemiCab, Inc. for a purchase price consisting of 3,210 shares of our common stock and a 20% membership interest in SemiCab Holdings. 3 Hospitality Lease On August 23, 2023, MICS NY entered into an agreement of lease with OAC 111 Flatiron, LLC and OAC Adelphi, LLC (collectively, the “Landlord”) pursuant to which MICS NY agreed to lease 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. It was our intention to use this space as a new karaoke venue, offering immersive karaoke technology and audio-visual capabilities, with restaurant and bar offerings. Due to a lack of funding, however, we initiated termination of the lease in March 2024. On July 26, 2024, the Landlord filed a civil action in the Supreme Court of the State of New York against us and MICS NY for alleged breach of lease, seeking monetary damages including unpaid rent, future unpaid rent, and other expenses related to the lease. The complaint alleged that we and MICS NY breached the lease in various material respects. On September 25, 2024, we and MICS NY entered into a settlement agreement with OAC Flatiron and OAC Adelphi for a full release and dismissal of the complaint that became effective within five business days of our payment of $250,000 to OAC Flatiron and OAC Adelphi. We made full payment of the settlement amount on October 25, 2024, and OAC Flatiron and OAC Adelphi filed a discontinuance with prejudice with the court on October 29, 2024. Oxford Credit Facility On March 28, 2024, we entered into a loan agreement and related revolving credit note with Oxford Commercial Finance (“Oxford”) for a $2,000,000 revolving line of credit. On October 17, 2024, we terminated the loan agreement and note and paid them a termination fee of $40,000. As of the date of termination, we had no outstanding amounts owed to Oxford. Name and Symbol Change Effective September 5, 2024, our Certificate of Incorporation was amended to change our name from “The Singing Machine Company, Inc.” to “Algorhythm Holdings, Inc.” In addition, effective September 8, 2024, our ticker symbol was changed from “MICS” to “RIME.” Amended Bylaws On October 18, 2024, we amended our bylaws to reduce the quorum necessary to hold stockholder meetings from a majority of the voting power of the shares of our common stock that are issued and outstanding to 33 1/3% of the voting power of the shares of our common stock that are issued and outstanding. 4 Private Placement On October 22, 2024, we entered into a securities purchase agreement pursuant to which we 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 our common stock equal to (x) 2,300,000, multiplied by (y) such purchaser’s subscription amount, divided by (z) $2,000,000. The Offering closed on October 24, 2024. At the closing, we issued to the purchasers an aggregate of 2,300,000 shares of our common stock and notes in the aggregate principal amount of $2,352,941 for total proceeds of $2,000,000 net of original issue discount of $352,941. Univest Securities served as the placement agent in the offering and received seven percent of the gross proceeds received by us and reimbursement of the legal fees of its counsel. We repaid all of the notes in December 2024. Regalia Ventures Share Repurchase On November 1, 2024, we entered into a stock repurchase agreement with Regalia Ventures LLC, a Delaware limited liability company (“Regalia Ventures”), pursuant to which we agreed to pay $472,527 to repurchase 5,495 shares of our common stock that Regalia Ventures had previously purchased from us on November 20, 2023. We agreed to issue a promissory note to Regalia Holdings 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 Regalia Holdings 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 serves as a member of our board of directors. Stingray Group Share Repurchase On December 3, 2024, we entered into a stock repurchase agreement with Stingray Group, Inc., a Canadian corporation (the “Stingray Group”), pursuant to which we agreed to pay $285,714 to repurchase 5,495 shares of our common stock that Stingray Group had previously purchased from us on November 20, 2023. 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 serves as a member of our board of directors. Public Offering of Securities On December 4, 2024, we sold 21,000 shares of our common stock and pre-funded warrants to purchase 258,412 shares of our common stock in lieu of receiving shares of common stock to accredited investors. Each share of our common stock, or pre-funded warrant in lieu thereof, was sold together with a Series A warrant to purchase one share of our common stock and a Series B warrant to purchase one share of our common stock, at an offering price of $34 per share of common stock or pre-funded warrant. Univest Securities, LLC (“Univest Securities”) served as our exclusive placement agent in connection with the offering. We paid Univest Securities a cash fee equal to seven percent of the aggregate gross proceeds received in the offering and a non-accountable expense allowance equal to one percent of the aggregate gross proceeds received in the offering. We also reimbursed Univest Securities for various expenses incurred in connection with the offering. We received net proceeds of $8,565,000 from the offering, after deducting placement agent fees and other offering expenses. 5 Registered Direct Offering of Securities On December 18, 2024, we sold 120,337 shares of our common stock to institutional investors in a registered direct offering at a purchase price of $16.62 per share. Univest Securities served as our exclusive placement agent in connection with the offering. We paid Univest Securities a cash fee equal to eight percent of the aggregate gross proceeds received in the offering. We reimbursed Univest Securities for various expenses incurred in connection with the offering. We received net proceeds of $1,665,000 from the offering, after deducting placement agent fees and other offering expenses. Reverse Stock Split and Increase in Authorized Shares On January 13, 2025, our stockholders voted to authorize our board of directors to effect a reverse stock split of the outstanding shares of our common stock at a specific ratio within a range of 1-for-10 to a maximum of 1-for-250 and to amend our certificate of incorporation to increase the number of authorized common stock from 100,000,000 to 800,000,000 shares. On January 14, 2025, our board of directors approved a reverse stock split of 1-for-200 ratio and approved the filing of a certificate of amendment to our certificate of incorporation to effect the reverse stock split and to increase our authorized shares of common stock from 100,000,000 to 800,000,000. The reverse stock split took effect on February 10, 2025. Appointment of Chief Financial Officer & General Counsel On February 13, 2025, our board of directors appointed Alex Andre to serve as our Chief Financial Officer and General Counsel. He replaced Richard Perez, who was terminated as our Chief Financial Officer on that same date. Our Product Portfolio Our product portfolio consists of our Singing Machine karaoke products and our SemiCab AI logistics and distribution services. Singing Machine Karaoke Product Offerings Karaoke Machines Our karaoke products are sold directly to distributors and retail customers under our flagship Singing Machine brand name and are offered at affordable price points that we believe deliver great value to our customers. All of our karaoke products are Bluetooth® enabled to allow access to digital music content via our mobile apps available on iOS and Android platforms. Our core karaoke line offers advanced features, including but not limited to, enabling customers to output video to a TV screen, correcting singer’s pitch in real-time with our proprietary PitchLab™ technology, streaming karaoke content directly to the machine via WiFi, casting karaoke songs from a mobile device to our karaoke machines through our SingCast™ casting technology, singing duets, and displaying scrolling lyrics in-time with the song. Our products are sold directly to consumers via our retail channels, ecommerce, our own website, and distributors worldwide. 6 Licensing Arrangements . We offer innovative Carpool Karaoke Microphone that works specifically in the car. In 2019, we entered into a 3-year license agreement with CBS ® for its Carpool Karaoke brand, made popular by James Corden on The Late Show with James Corden. This license agreement with CBS expired on September 30, 2022. On February 28, 2023, we renewed this license agreement for an additional three years. On March 16, 2023, we entered into a three-year license agreement with Sesame Street Workshop for its Sesame Street brand for karaoke and singalong toy products, effective January 1, 2023. Through this license agreement, we develop and offer for sale all the iconic and beloved Sesame Street characters like Elmo, Big Bird, Cookie Monster, Abby Cadabby, and many more. Microphones and Accessories We offer a line of traditional microphone accessories that are compatible with our karaoke machines. These microphones feature an assortment of colors, come wired or wireless, and may include new features like party lighting and voice changing effects. We also offer portable Bluetooth microphones which are marketed under our Party Machine brand. Singing Machine Kids Youth Electronics We have a children’s line of products offered under our Singing Machine Kids brand that have fun music entertainment features designed specifically for children. Our products for children introduce singing and music entertainment for young singers and offer advanced features, such as voice changing effects, recording, Bluetooth compatibility, and portability. Automotive Technology We intend to enter the connected vehicle karaoke device market through a partnership that we have with Stingray Group. We have developed microphone hardware utilizing our PitchLab™ technology to offer integrated wireless microphones for connection with major automotive brand’s vehicles. We are currently in discussions with many automotive brands to offer these products. Music Subscriptions In conjunction with Stingray Group, we offer karaoke music subscription services for the iOS and Android platforms as well as a web-based download store and integrated streaming services for our hardware. We currently offer almost 20,000 licensed karaoke songs in the catalog. 7 SemiCab AI Logistics and Distribution Services Transportation Services SemiCab offers transportation services to shippers and brokers that deliver products for retailers and manufacturers. SemiCab primarily focuses on full truck load and over-the-road transportation services. SemiCab’s services are sold directly to shippers via bids for transportation services. These bids are typically awarded for a selected number of routes for a pre-determined period of time, normally up to a year. SaaS Subscription for Shippers This service category consists of a SaaS based platform subscription for shippers that enables them to better manage their freight network by creating optimal lane bundles for bidding and optimized execution of loads with better control over their data and analytics. Saas Subscription for Brokers SemiCab also offers a software-as-a-service (“SaaS”) based platform subscription for logistics brokers that enables them to better manage their operations for transportation execution. The subscription primarily covers shipper management, carrier management, document management, load operations management, invoicing, integration services, and reporting and analytics. Product Development and Design Singing Machine Karaoke Product Offerings Product development is a key element of our strategic growth plan for our karaoke products. We strive to deliver many new, exciting consumer products to market every single year to retain and strengthen our presence in consumer karaoke products. Strategic product development is done in-house from our corporate headquarters in Fort Lauderdale, FL where we identify new potential categories, features, and price points. Products are created in conjunction with contract product designers and inventors in collaboration with our contract manufacturers in China to deliver products that represent tremendous value to our customers. In addition to new products, we always look for ways to improve existing products to hit more affordable price points or improve features based upon market feedback. SemiCab AI Logistics and Distribution Services For our SemiCab logistics and distribution services, we are focused on expanding and enhancing our SemiCab platform to provide better transportation services to our customers as well as to automate operational processes. The objective of these additions and enhancements is to build additional functionality and improve or automate existing functions. This will make us more efficient, lower the costs of operation, provide consistent and reliable services, and reduce potential human error in its processes targeting the transportation execution and billing. We maintain a small, dedicated software development team in India to build, host, maintain and enhance our SemiCab platform. 8 Suppliers and Manufacturing Singing Machine Karaoke Product Offerings We source our karaoke products from a variety of contract manufacturers in southern China. We are not dependent on any one supplier as we use multiple manufacturers to make our products. We maintain a Hong Kong office that provides us with factory management, sourcing, quality control, engineering, and product development. We buy finished goods from our suppliers and generally do not source raw materials for manufacturing, however in limited circumstances where we develop proprietary hardware and software, we will secure the proprietary circuits and provide them to our contract manufacturers for assembly into the final product. While we are not responsible for sourcing raw materials, we rely on our contract manufacturers’ ability to secure injected plastic, wood cabinets, integrated circuits, display panels, speaker drivers, and other components that are necessary for assembly into our final products. Our karaoke products are manufactured by our contract manufacturers and are either shipped via ocean vessels to our two third-party logistics (“3PL”) warehouses located in California and Canada or we utilize a direct import program where our retail customers coordinate to pick up the goods FOB China. The direct import program allows our customers to take advantage of better ocean container rates through bigger volume and allows us to bypass our 3PL warehouses. We sell directly to retail customers and independent channels in Canada from our 3PL warehouse in Canada. Historically, most of our customers pick up goods from our warehouse (freight collect). On August 31, 2023, the lease at our Ontario, California warehouse facility expired and was not renewed. Instead, we outsourced this business function by entering into a service agreement with a 3PL company to provide domestic and Canadian warehousing services, effective September 1, 2023. SemiCab AI Logistics and Distribution Services We do not utilize any suppliers or manufacturers in connection with our SemiCab logistics and distribution services. Sales and Marketing Singing Machine Karaoke Product Offerings Our karaoke products are marketed and sold through our direct sales team, working in conjunction with independent sales representatives that provide sales and customer support for our retail customers in North America. We seek to expand our direct-to-consumer sales, which we believe will increase overall gross margins and increase brand awareness. Sales are recognized upon transfer of title to our customers and are made utilizing standard credit terms of 60 to 90 days. Our sales terms indicate that we only accept returns for defective merchandise, however we have accepted overstock returns from our retail partners in the past. Marketing, promotion, and consumer engagement are key elements in the youth electronics, toy, and music categories. Historically, a significant percentage of our promotional spending has been structured as co-op promotion incentives with our large retail partners. We continue to focus our marketing efforts on growing brand awareness among our target consumer demographic, optimizing marketing investments, and executing an integrated marketing strategy. We believe that an important component of our future growth is based on speaking to the right customer, with the right content, in the right channel, at the right time. We have implemented online marketing, social media, and digital analytics tools, which allow us to better measure the performance of our marketing activities, learn from our consumers, and receive valuable insights into industry and competitor activities. 9 Customer service is a critical component of our marketing strategy for our karaoke products. We maintain a U.S.-based internal customer service department within our corporate headquarters that responds to customer inquiries, investigates, and resolves issues, and is available to assist customers and consumers during business hours. SemiCab AI Logistics and Distribution Services Our SemiCab logistics and distribution services are sold through our direct sales team who work with shippers, participate in preparing and submitting transportation bids, and onboard shippers and customers to start operations. While the transportation services contracts are signed for longer durations, generally up to a year, revenue from these services is recognized only after the loads from shippers are executed and delivered by us. Our platform subscriptions are sold through resellers. Sales are recognized on a rolling monthly basis aligned with SaaS revenue models. SemiCab uses limited marketing and promotions at this time as it is primarily focused on creating name recognition and visibility through appropriate social media channels, blogs, and press releases to share industry awards and customer acquisition news. Competition Singing Machine Karaoke Product Offerings With respect to our karaoke products, the youth electronics, toy, and music industries have many participants, none of which have a dominant market share, though certain companies may have disproportionate strength in specific product categories. We compete with a number of different companies in a variety of categories, although there is no single company that competes with us across all of our product categories. Our largest direct competitors are Singsation ® , Singtrix ® , eKids ® , Bonaok, Karaoke USA ™ , and Ion ® Audio. The primary methods of competition in the industry consist of brand positioning, product innovation, quality, price, and timely distribution. Our competitive strengths include our ability to develop innovative new products and features, speed to market, our relationships with major retailers, and the quality and pricing of our products. SemiCab AI Logistics and Distribution Services In the AI logistics and distribution space, we compete with traditional and non-traditional logistics companies, including transportation providers that own equipment, third-party freight brokers, technology matching services, internet freight brokers, carriers offering logistics services, and on-demand transportation service providers. We win business by providing reliable services at lower costs and creating an industry-wide network that can operate more efficiently with less empty miles than the industry norm, thus creating a more sustainable transportation network for the entire industry. 10 Intellectual Property We rely on a combination of word and design mark trademarks and trade secrets to protect our intellectual property. In certain circumstances, we will partner with third parties to develop proprietary products, and, where appropriate, we have license agreements related to the use of third-party innovation in our products. The duration of our trademark registrations varies from country to country. However, trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained. Customers Singing Machine Karaoke Product Offerings We operate across geographically diverse marketplaces and sell our karaoke products globally to large, national retailers as well as independent retailers, on our retailer’s websites, and our own direct to consumer website. In North America, our customers include Amazon, Costco, Sam’s Club, Target and Wal-Mart. Our largest international territories are the U.K. and Australia, where we sell through international distributors. We also sell to select international retail customers in geographic locations where we do not have a direct sales presence. Sales to our top five customers and top three customers collectively in our karaoke business comprised 79% and 81% of our revenue, respectively, for the year ended December 31, 2024 and the nine-month transition period ended December 31, 2023, respectively. We have no long-term contracts with these customers, and as a result, our success depends heavily on our customers’ willingness to purchase and provide floor or shelf space for our products. SemiCab AI Logistics and Distribution Services In the logistics industry, we provide our contract-based, long-haul, full truckload transportation services in the United States. We offer our services to any shipper that may need such services on an ongoing basis. Our customers include Staples and Pepsi. Seasonality Singing Machine Karaoke Product Offerings We experience heightened seasonal demand for our karaoke products, typically beginning in late July, and extending into early November of each calendar year, which is accounted for in our quarters ended September 30 th and December 31 st . Transportation demand is also seasonal by nature. In the US, freight demand typically increases before the holidays and reduces after the holiday season is over. The agricultural produce seasons may also affect the freight markets. In India, agricultural and festival seasons drive the market seasons for freight. SemiCab AI Logistics and Distribution Services In the AI logistics and distribution space, the transportation industry not only experiences seasonality, but it is cyclic as well and goes through regular boom and bust cycles. Capacity falls when demand and prices are high. By contrast, smaller operators go out of business when supplies build up and depress prices. 11 Regulatory Matters Singing Machine Karaoke Product Offerings Each of our karaoke products are designed to comply with all applicable mandatory and voluntary safety standards. In the United States, these safety standards are promulgated by federal, state and independent agencies such as the United States Consumer Product Safety Commission, ASTM International, the Federal Communications Commission, and various states Attorney Generals and state regulatory agencies. All of our products are independently tested by third party laboratories accepted by the Consumer Product Safety Commission to verify compliance to applicable safety standards. A similar approach is used to design and test products sold internationally. SemiCab AI Logistics and Distribution Services With respect to our SemiCab AI logistics and distribution services, the transportation industry in the Unites States is regulated by the Department of Transportation. This federal agency mandates licensing, insurance and service requirements on the operators in this industry. Employees As of April 14, 2025, we had a total of 25 employees. None of our employees are represented by a collective bargaining unit or is a party to a collective bargaining agreement. Available Information We file reports and other materials with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements. We make available free of charge through our website at https://ir.algoholdings.com/investor-filings#/ all materials that we file electronically with the SEC as soon as reasonably practicable after electronically filing or furnishing such material with the SEC. These materials are also available on the SEC’s website at www.sec.gov. The information contained on, or accessible through, our website and the SEC’s website does not constitute a part of this report. The inclusion of our website and the SEC’s website in this report is an inactive textual reference only.