Algorhythm Holdings, Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number: 001-41405 ALGORHYTHM HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 95-3795478 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) 6301 NW 5th Way , Suite 2900 , Fort Lauderdale , FL 33309 ( 954 ) 596-1000 (Address of principal executive offices) (Zip Code) (Registrant’s telephone number, including area code) Securities registered under Section 12(b) of the Act: Title of Each Class Trading Symbol Name of each exchange on which registered Common Stock, $0.01 par value per share RIME NASDAQ Capital Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act: Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of May 14, 2025, there were 2,514,571 shares of the issuer’s common stock, $ 0.01 par value per share, outstanding. ALGORHYTHM HOLDINGS, INC. TABLE OF CONTENTS Page PART I – FINANCIAL INFORMATION Item 1. Financial Statements 3 Condensed Consolidated Balance Sheets as of March 31, 2025 (Unaudited) and December 31, 2024 3 Condensed Consolidated Statements of Operations for the three months ended March 31, 2025 and 2024 (Unaudited) 4 Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2025 and 2024 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024 (Unaudited) 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Item 3. Quantitative and Qualitative Disclosures About Market Risk 33 Item 4. Controls and Procedures 33 PART II – OTHER INFORMATION Item 1. Legal Proceedings 34 Item 1A. Risk Factors 35 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35 Item 3. Defaults Upon Senior Securities 35 Item 4. Mine Safety Disclosures 36 Item 5. Other Information 36 Item 6. Exhibits 36 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Algorhythm Holdings, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2025 December 31, 2024 (Unaudited) Assets Current Assets Cash $ 3,296,000 $ 7,550,000 Accounts receivable, net of allowances of $ 396,000 and $ 275,000 , respectively 1,385,000 4,373,000 Accounts receivable, related party 357,000 212,000 Accounts receivable 357,000 212,000 Note receivable, related party 1,201,000 701,000 Inventory 1,895,000 2,186,000 Returns asset 751,000 1,621,000 Prepaid expenses and other current assets 126,000 120,000 Total Current Assets 9,011,000 16,763,000 Property and equipment, net 253,000 284,000 Other non-current assets 81,000 124,000 Intangible assets, net 330,000 345,000 Goodwill 786,000 786,000 Total Assets $ 10,461,000 $ 18,302,000 Liabilities and Shareholders’ Equity Current Liabilities Accounts payable $ 1,301,000 $ 3,808,000 Accrued expenses 2,414,000 4,224,000 Refund due to customer 630,000 38,000 Reserve for sales returns 1,742,000 3,355,000 Warrant liability - 16,603,000 Current portion of notes payable to related parties 551,000 265,000 Other current liabilities 97,000 145,000 Total Current Liabilities 6,735,000 28,438,000 Notes payable to related parties, net of current portion 385,000 385,000 Total Liabilities 7,120,000 28,823,000 Commitments and Contingencies - - Shareholders’ Equity (Deficit) Preferred stock, $ 1.00 par value; 1,000,000 shares authorized; no shares issued and outstanding at March 31, 2025 and December 31, 2024 - - Common stock, $ 0.01 par value; 800,000,000 and 100,000,000 shares authorized; 2,394,829 and 470,825 shares issued and outstanding at March 31, 2025 and December 31, 2024 24,000 5,000 Additional paid-in capital 63,577,000 39,682,000 Accumulated deficit ( 58,363,000 ) ( 49,172,000 ) Non-controlling interest ( 1,139,000 ) ( 1,036,000 ) Treasury stock, 10,990 and - 0 - shares reserved at March 31, 2025 and 2024 ( 758,000 ) - Total Algorhythm Holdings Shareholders’ Equity (Deficit) 3,341,000 ( 10,521,000 ) Total Liabilities and Shareholders’ Equity (Deficit) $ 10,461,000 $ 18,302,000 See notes to the condensed consolidated financial statements 3 Algorhythm Holdings, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) March 31, 2025 March 31, 2024 For the Three Months Ended March 31, 2025 March 31, 2024 Net Sales $ 1,993,000 $ 2,426,000 Cost of Goods Sold 1,493,000 1,924,000 Gross Profit 500,000 502,000 Operating Expenses Selling expenses 764,000 630,000 General and administrative expenses 2,546,000 2,159,000 Total Operating Expenses 3,310,000 2,789,000 Loss from Operations ( 2,810,000 ) ( 2,287,000 ) Other Expenses Change in fair value of warrant liability ( 6,468,000 ) - Interest expense ( 16,000 ) ( 28,000 ) Total Other Expenses ( 6,484,000 ) ( 28,000 ) Loss Before Income Tax Benefit ( 9,294,000 ) ( 2,315,000 ) Income Tax Provision - ( 52,000 ) Net Loss ( 9,294,000 ) ( 2,367,000 ) Net loss attributable to non-controlling interest 103,000 - Net Loss Available to Common Stockholders $ ( 9,191,000 ) $ ( 2,367,000 ) Loss per common share Basic and diluted $ ( 4.66 ) $ ( 73.76 ) Weighted Average Common and Common Equivalent Shares: Basic and diluted 1,972,869 32,090 See notes to the condensed consolidated financial statements 4 Algorhythm Holdings, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY For the Three Months Ended March 31, 2025 and 2024 (Unaudited) Shares Amount Capital Interest Stock Deficit Total Common Stock Additional Paid-in Non-Controlling Treasury Accumulated Shares Amount Capital Interest Stock Deficit Total Balance at December 31, 2024 470,825 $ 5,000 $ 39,682,000 $ ( 1,036,000 ) $ - $ ( 49,172,000 ) $ ( 10,521,000 ) Net loss - - - ( 103,000 ) - ( 9,191,000 ) ( 9,294,000 ) Exercise of Series B warrants 1,910,975 19,000 15,195,000 - - - 15,214,000 Stock-based compensation 23,818 - 85,000 - - - 85,000 Reclassification of Series A warrants to equity - - 7,857,000 - - - 7,857,000 Repurchase of common stock from related parties ( 10,990 ) - 758,000 - ( 758,000 ) - - Other 201 - - - - - - Balance at March 31, 2025 2,394,829 $ 24,000 $ 63,577,000 $ ( 1,139,000 ) $ ( 758,000 ) $ ( 58,363,000 ) $ 3,341,000 Balance at December 31, 2023 32,090 $ - $ 33,493,000 $ - $ - $ ( 25,915,000 ) $ 7,578,000 Balance 32,090 $ - $ 33,493,000 $ - $ - $ ( 25,915,000 ) $ 7,578,000 - Net loss - - - - - ( 2,367,000 ) ( 2,367,000 ) Stock-based compensation - - 19,000 - - - 19,000 Balance at March 31, 2024 32,090 $ - $ 33,512,000 $ - $ - $ ( 28,282,000 ) $ 5,230,000 Balance 32,090 $ - $ 33,512,000 $ - $ - $ ( 28,282,000 ) $ 5,230,000 See notes to the condensed consolidated financial statements 5 Algorhythm Holdings, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) March 31, 2025 March 31, 2024 For the Three Months Ended March 31, 2025 March 31, 2024 Cash flows from operating activities Net loss $ ( 9,294,000 ) $ ( 2,367,000 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 91,000 136,000 Reduction in SMCB loan in exchange for services 172,000 - Provision for estimated cost of returns 870,000 658,000 Change in fair value of warrant liability 6,468,000 - Provision for inventory obsolescence 4,000 - Credit losses 3,000 101,000 Reserve for sales returns ( 1,614,000 ) ( 971,000 ) Stock-based compensation 85,000 19,000 Changes in operating assets and liabilities: Accounts receivable 2,986,000 3,902,000 Accounts receivable - related parties ( 145,000 ) 136,000 Inventories 287,000 379,000 Prepaid expenses and other current assets ( 6,000 ) ( 78,000 ) Accounts payable ( 2,507,000 ) ( 3,669,000 ) Accrued expenses ( 1,053,000 ) ( 299,000 ) Refunds due to customers 592,000 ( 300,000 ) Prepaids from customers - ( 279,000 ) Other liabilities ( 47,000 ) 75,000 Net cash used in operating activities ( 3,108,000 ) ( 2,557,000 ) Cash flows from investing activities Advances to SMCB ( 672,000 ) - Other ( 1,000 ) - Net cash used in investing activities ( 673,000 ) - Cash flows from financing activities Repayment of note payable to related party ( 473,000 ) - Other - ( 21,000 ) Net cash used in financing activities ( 473,000 ) ( 21,000 ) Net change in cash ( 4,254,000 ) ( 2,578,000 ) Cash at beginning of year 7,550,000 6,703,000 Cash at end of period $ 3,296,000 $ 4,125,000 Supplemental disclosures of cash flow information: Cash paid for interest $ 17,000 $ 27,000 Non-Cash investing and financing cash flow information: Reclassification of Series A warrants to equity $ 7,857,000 $ - Common stock issued for exercise of Series B warrants $ 15,214,000 $ - Repurchase of common stock from related parties in exchange for promissory note $ 758,000 $ - See notes to the condensed consolidated financial statements 6 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) Note 1 – Nature of Business Algorhythm Holdings, Inc. (f/k/a The Singing Machine Company, Inc.) (the “Company”) is an artificial intelligence (“AI”) technology and consumer electronics holding company with two primary business units – SemiCab and Singing Machine. SemiCab is an AI-enabled software logistics business operated through the Company’s subsidiary, SemiCab Holdings, LLC. Singing Machine is a home karaoke consumer products business that designs and distributes karaoke products globally to retailers and ecommerce partners through the Company’s subsidiary, The Singing Machine Company, Inc. The Company’s operations include its wholly-owned subsidiaries, SMC Logistics, Inc., a California corporation (“SMCL”), SMC-Music, Inc., a Florida corporation (“SMCM”), SMC (HK) Limited, a Hong Kong company (“SMH”), The Singing Machine Company, Inc., a Delaware corporation (“Singing Machine”), MICS Hospitality Holdings, Inc., a Delaware corporation (“MICS Hospitality”), MICS Hospitality Management, LLC, a Delaware limited liability company (“MICS Hospitality Management”), and MICS Nomad, LLC, a Delaware limited liability company (“MICS NY”), and its 80 %-owned subsidiary, SemiCab Holdings, LLC, a Nevada limited liability company (“SemiCab Holdings”). Effective September 5, 2024, the Company’s Certificate of Incorporation was amended to change the name of the Company from “The Singing Machine Company, Inc.” to “Algorhythm Holdings, Inc.” On January 13, 2025, the Company’s stockholders voted to authorize the Company’s board of directors to effect a reverse stock split of the Company’s outstanding shares of common stock at a specific ratio within a range of 1-for-10 to a maximum of 1-for-250 and to amend the Company’s certificate of incorporation to increase the number of authorized common stock from 100,000,000 to 800,000,000 shares. On January 14, 2025, the Company’s board of directors approved a reverse stock split of 1-for-200 ratio and approved the filing of a certificate of amendment to the Company’s certificate of incorporation to effect the reverse stock split and to increase the Company’s authorized shares of common stock from 100,000,000 to 800,000,000. The reverse stock split took effect on February 10, 2025. All current and prior year balances have been adjusted to reflect the reverse stock split. Note 2 – Liquidity, Going Concern and Management Plans Going Concern Analysis As of March 31, 2025, the Company’s cash balance was $ 3,296,000 . This will not be sufficient to fund its planned operations for at least one year after the date the consolidated financial statements are issued. The Company has a recent history of recurring operating losses and decreases in working capital. These factors create substantial doubt about the Company’s ability to continue as a going concern for at least one year after the date that the Company’s audited consolidated financial statements are issued. 7 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern and that the realization of assets and satisfaction of liabilities and commitments will continue in the ordinary course of business. The Company plans to finance operations by obtaining additional capital through external sources of financing. It may attempt to obtain additional capital through the sale of equity securities or the issuance of debt securities. The Company has not made arrangements to obtain additional capital and can provide no assurance that additional financing will be available in an amount or on terms acceptable to the Company, if at all. In making this assessment, management performed a comprehensive analysis of the Company’s current circumstances including its financial position, cash flow and outflow forecasts, and obligations and debts. Although management has a recent history of successful capital raises, the analysis used to determine the Company’s ability to continue as a going concern does not include cash resources outside the Company’s direct control that management expects to be available within the next 12 months. Note 3 – Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited financial statements for the three months ended March 31, 2025 and 2024 have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) applicable to interim financial information and the requirements of Form 10-Q and Article 8 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and disclosures required by US GAAP for complete consolidated financial statements. In the opinion of management, the condensed consolidated financial statements include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of the condensed consolidated financial position and the condensed consolidated results of operations. The condensed consolidated results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet as of March 31, 2025 and condensed financial statement information for the three months ended March 31, 2025 and 2024 are unaudited whereas the condensed consolidated balance sheet as of December 31, 2024 is derived from the audited consolidated balance sheet as of that date. The condensed consolidated financial statements and notes hereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2024. There have been no changes to the Company’s significant accounting policies as disclosed on the Company’s annual report on Form 10-K for the year ended December 31, 2024. 8 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) Segment Reporting Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting (“ASC 280”), the Company’s Chief Executive Officer serves as the Company’s Chief Operating Decision Maker (“CODM”) for the purposes of ASC 280. The CODM concluded that the Company operates two reportable segments. One segment consists of its SemiCab business and the other segment consists of its Singing Machine business. The CODM manages the Company’s operations and business separately for each operating segment and uses net loss to allocate resources, making operating decisions and evaluating financial performance. The CODM also uses net loss, along with non-financial inputs and qualitative information, to evaluate the Company’s performance, establish compensation, monitor budget versus actual results, and decide the level of investment in various operating activities and other capital allocation activities. See Note 14 – Segment Information and Revenue Disaggregation – Segment Information . Recent Accounting Pronouncements In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . ASU 2023-09 is intended to enhance the usefulness of income tax disclosures by requiring entities to disclose specific rate reconciliations, amount of income taxes separate by federal and individual tax jurisdictions, and the amount of income (loss) from continuing operations before income tax expense (benefit) disaggregated between federal, state and foreign. ASU 2023-09 is effective for the Company for its fiscal year beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and related disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) . This ASU requires disclosure on an annual and interim basis, in the notes to the financial statements, of disaggregated information about specific categories underlying certain income statement expense line items. The guidance is effective for annual periods beginning after December 15, 2026, and interim periods with annual reporting periods beginning after December 15, 2027, on a retrospective basis. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures. In November 2024, the FASB issued ASU 2024-04, Debt – Debt with Conversion and Other Options (Subtopic 470-20) . This ASU clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. ASU 2024-04 is effective for annual periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities that have adopted the amendments in Update 2020-06. Adoption can be on a prospective or retrospective basis. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures. 9 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) Note 4 – Variable Interest Entities The Company determined that SMCB Solutions Private Limited, an Indian Company (“SMCB”), is a Variable Interest Entity (“VIE”) because the Company provides financial support to SMCB in the form of a loan agreement to fund SMCB’s operations. The Company further determined that it is not the primary beneficiary of SMCB because the Company does not have the power to direct or control SMCB’s significant activities related to its business. Accordingly, the Company has not consolidated SMCB’s results of operations and financial position in its consolidated financial statements. Note 5 – Property and Equipment, Intangible Assets and Goodwill A summary of the Company’s property and equipment at March 31, 2025 and December 31, 2024 is as follows: Schedule of Property and Equipment Useful March 31, December 31, Life 2025 2024 Computer and office equipment 5 - 7 years $ 413,000 $ 412,000 Furniture and fixtures 7 years 107,000 107,000 Molds and tooling 3 - 5 years 2,298,000 2,297,000 Property and equipment gross 2,818,000 2,816,000 Less: Accumulated depreciation 2,565,000 2,532,000 Property and equipment net $ 253,000 $ 284,000 Depreciation expense was $ 33,000 and $ 52,000 for the three months ended March 31, 2025 and 2024, respectively. A summary of the Company’s intangible assets at March 31, 2025 and December 31, 2024 is as follows: Schedule of Intangible Assets Useful March 31, December 31, Life 2025 2024 Customer Relationships 5 - 7 years $ 25,000 $ 25,000 Trade Name 7 years 25,000 25,000 Developed Technology 3 - 5 years 325,000 325,000 Intangible assets gross 375,000 375,000 Less: Accumulated amortization 45,000 30,000 Intangible assets net $ 330,000 $ 345,000 10 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) Amortization expense was $ 15,000 for the three months ended March 31, 2025. The Company did not have any intangible assets or goodwill at March 31, 2024. The Company tested the recorded amount of goodwill for impairment on December 31, 2024 to see if the carrying amount of goodwill exceeded its carried value. The Company calculated a market-based valuation utilizing inputs classified as level 3 on the fair value hierarchy by multiplying one by projected 2025 revenue for the SemiCab business. The Company determined that no impairment of goodwill needed to be recorded during the three months ended March 31, 2025. There was no change in goodwill during the three months ended March 31, 2025. Note 6 – Notes Payable to Related Parties SemiCab Holdings assumed several unsecured loans from Ajesh Kapoor and Vivek Sehgal in the acquisition of SemiCab, Inc.’s business. The Company had accrued interest payable of $ 5,000 as of March 31, 2025 that was included as a component of accrued expenses on the Company’s condensed consolidated balance sheets. The Company incurred interest expense on these loans of $ 15,000 for the three months ended March 31, 2025. The terms of each loan are summarized in the table below: Schedule of Notes Payable to Related Parties Loan Issue Maturity Interest Note Holder Date Date Status Rate Principal Ajesh Kapoor 7/10/2021 7/10/2026 Current 9 % $ 150,000 Ajesh Kapoor 8/27/2021 8/26/2026 Current 9 % 235,000 Vivek Sehgal 4/17/2023 2/1/2026 Current 10 % 50,000 Ajesh Kapoor 5/5/2023 2/1/2026 Current 10 % 50,000 Ajesh Kapoor 5/17/2023 2/1/2026 Current 10 % 165,000 Balance as of March 31, 2025 $ 650,000 Balance $ 650,000 Less: current portion of notes payable to related parties 265,000 Notes payable to related parties, net of current portion $ 385,000 As of December 31, 2024, the loans described above that were issued between April 17, 2023 and Mary 17, 2023 were in default. Subsequent to December 31, 2024, the Company entered into waivers and amendments with each of the note holders who are parties to those loans to extend the maturity dates of the loans to February 1, 2026. On February 18, 2025, the Company issued a promissory note to each of Stingray Group and Regalia Ventures in the amount of $ 286,000 and $ 472,000 , respectively. A discussion of these transactions and the terms of the promissory notes is set forth herein in Note 11 – Securities Transactions . 11 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) Note 7 – Credit Facilities and Other Financing Arrangements Oxford Credit Facility On March 28, 2024, the Company entered into a loan agreement and related revolving credit note with Oxford Commercial Finance (“Oxford”). The agreement was for a two-year term and established a secured asset-backed revolving credit facility that was comprised of a maximum $ 2,000,000 revolving credit facility. Availability under the credit facility was determined monthly by a borrowing base comprised of a percentage of eligible accounts receivable of the borrowers. The Company’s obligations under the credit agreement were secured by a continuing security interest in all property of each Loan Party, subject to certain excluded collateral. As of March 31, 2024, there was no availability under the Credit Facility as there were no eligible accounts receivable. On October 17, 2024, the Company terminated the loan agreement and note and paid Oxford a termination fee of $ 40,000 . As of the date of termination, the Company had no outstanding amounts owed to Oxford. Agile Capital Merchant Cash Advance In connection with the acquisition of SemiCab, Inc.’s business, the Company assumed a merchant cash advance that was payable to Agile Capital Funding, LLC that had been incurred under a financing agreement that SemiCab, Inc. had entered into on March 22, 2024. The initial amount borrowed was $ 315,000 , with net proceeds to SemiCab, Inc. in the amount of $ 300,000 . Repayment terms consisted of weekly payments in the amount of $ 16,200 for 28 weeks for a total repayment of $ 453,600 . The effective interest rate for the borrowings is 15 % per year. As of December 31, 2024, the merchant cash advance had been repaid in full. Cedar Advance Merchant Cash Advance In connection with the acquisition of SemiCab, Inc.’s business, the Company assumed a merchant cash advance that was payable to Cedar Advance, LLC that had been incurred under a financing agreement that SemiCab, Inc. had entered into on May 8, 2024. The initial amount borrowed was $ 215,000 , with net proceeds to SemiCab, Inc. in the amount of $ 204,300 . Repayment terms consisted of weekly payments in the amount of $ 11,100 for 28 weeks for a total repayment of $ 312,000 . The effective interest rate for the borrowings is 18 % per year. As of December 31, 2024, the merchant cash advance had been repaid in full. Note 8 – Commitments and Contingencies The Company is subject to claims, suits and other proceedings from time to time in the ordinary course of business that could result in fines, civil penalties, or other adverse consequences. In accordance with the provisions of ASC Topic 450, Contingencies, the Company records a liability when it believes that it is probable that a loss has been incurred and the amount can be reasonably estimated. If the Company determines that it is probable that a loss has been incurred and the loss or range of loss can be estimated, the Company discloses the estimated amount of the loss. The Company evaluates developments in its legal matters that could affect the amount of liability that has been previously accrued and makes adjustments as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters. 12 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) Efficient Capital Labs Settlement Agreement On May 18, 2023, SemiCab, Inc. entered into an installment business loan agreement with Efficient Capital Labs, Inc. (“ECL”) pursuant to which SemiCab, Inc. borrowed the principal amount of $ 1,000,000 . Repayments were originally scheduled to begin in June 2023 in equal installments of $ 91,667 for 13 months with an effective interest rate of 17.97 %. The loan had a maturity date of May 17, 2024. On May 18, 2024, SemiCab, Inc. defaulted on the loan for non-payment. On May 18, 2024, SemiCab, Inc. entered into a settlement agreement with ECL pursuant to which SemiCab, Inc. agreed to pay ECL $ 946,666 as follows: (i) $ 25,000 on or before May 20, 2024; (ii) $ 75,000 on or before June 3, 2024; and (iii) $ 84,666 on or before the first business day of each of the following 10 calendar months starting on July 1, 2024. In connection with the acquisition of the SemiCab, Inc.’s business, the Company assumed this settlement liability. As of March 31, 2025 and December 31, 2024, the remaining unpaid balance of the settlement was $ 73,000 and $ 325,000 , respectively, and was included as a component of accrued expenses on the Company’s consolidated balance sheets. The Company was in compliance with the terms of the settlement at March 31, 2025. Derivative Litigation On December 21, 2023, Ault Lending, LLC (“Ault Lending”), a wholly-owned subsidiary of Ault Alliance, Inc., a former shareholder of the Company, filed a derivative shareholder action in Delaware Chancery Court against the Company, its board of directors, Stingray Group, LLC (“Stingray Group”) and Regalia Ventures, LLC (“Regalia Ventures”) for alleged breach of fiduciary duty in approving a recent above-market private placement equity transaction. The complaint alleged that the Company and its board of directors followed an inadequate process in evaluating the private placement transaction that the Company completed in November 2023 and that the Company and its board of directors entered into the transaction with an intent to dilute Ault’s ownership stake in the Company. Ault Lending was seeking the following relief from the court: (i) declarations that the defendant directors breached their fiduciary duties; and that Stingray Group and Regalia Ventures aided and abetted those breaches; (ii) rescission of the Company’s sale of shares to Stingray Group and Regalia Ventures ; and (iii) damages and attorney’s fees. On April 30, 2025, Ault Lending filed a motion with the court requesting that the claims be dismissed without prejudice and on that same date, the court approved the dismissal of the claims without prejudice. 13 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) OAC Flatiron & OAC Adelphi Litigation On August 23, 2023, MICS NY entered into an Agreement of Lease (the “Lease Agreement”) with OAC 111 Flatiron, LLC and OAC Adelphi, LLC (the “Landlord”), pursuant to which MICS NY agreed to lease approximately 10,000 square feet of ground floor retail space and a portion of the basement underneath the ground floor retail space in the property located at 111 West 24 th Street, New York, New York (the “Premises”). During the year ended December 31, 2024, the Company abandoned its plans to continue use of the leased space and exercised its early termination provision of the Lease Agreement which was not accepted by the Landlord. Due to the abandonment of the lease, all assets related to the lease were impaired. Assets including security deposits, rent deposits and right of use assets of approximately $ 3,878,000 were written off during the year ended December 31, 2024. On July 26, 2024, the Landlord filed a civil action in the Supreme Court of the State of New York against MICS NY and the Company (“the Defendants”) for alleged breach of lease, seeking monetary damages including unpaid rent, future unpaid rent, and other expenses related to the lease. The complaint alleged the Defendants breached the lease in various material respects. On September 25, 2024, the Company entered into a settlement agreement for a full release and dismissal of the complaint within five business days of the Company’s payment of $ 250,000 . Pursuant to the settlement agreement, the Company made the first payment of $ 150,000 on September 25, 2024 and a final payment of $ 100,000 on October 25, 2024. The remaining lease liability was written off upon settlement, resulting in a loss upon termination of the lease of $ 4,000 , net of the write off of the related lease asset discussed above. On October 29, 2024, the Landlord filed a discontinuance with prejudice. Blue Yonder Liability Pursuant to the asset purchase agreement with SemiCab, Inc., the Company assumed a judgement against SemiCab, Inc. regarding damages resulting from contract breach for IT subscription-based services. On March 28, 2020, SemiCab, Inc. entered into a service contract and agreement with Blue Yonder, Inc. (“Blue Yonder”) for certain IT subscription-based services. The original term of the agreement was for three years, at a price of $ 100,000 per year, for a total of $ 300,000 . On June 21, 2023, Blue Yonder filed a lawsuit claiming damages in the amount of $ 275,000 with the Maricopa County Superior Court in Arizona. The suit was found in favor of Blue Yonder in the amount of $ 509,119 , subject to two separate milestone payments that would otherwise deem the entire balance due satisfied if either milestone payment is made by the Company. The first milestone payment for $ 175,000 and was due on July 1, 2024 and was not made. In the event this payment is made, the remaining settlement shall be deemed satisfied. If this payment is not made, the Company shall owe a total of $ 225,000 by October 1, 2024. In the event this payment is made, the remaining settlement shall be deemed satisfied. If neither payment is made, Blue Yonder shall be entitled to execute the full $ 509,119 beginning January 1, 2025. As of the date of this filing, none of the scheduled payments have been made. A liability of $ 509,119 has been recorded as a component of accrued expenses on the accompanying consolidated balance sheets. 14 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) On February 11, 2025, Blue Yonder filed a civil action in the Superior Court of the State of Arizona against the Company for breach of contract and to enforce a stipulated judgment entered against SemiCab, Inc. in connection with the liabilities related to Blue Yonder that the Company assumed when it acquired SemiCab, Inc.’s business. Blue Yonder alleges that, because the Company assumed these liabilities, Blue Yonder can enforce the judgment against the Company. The judgement was in the amount of $ 509,119 . The outcome of this matter is uncertain. Note 9 – Stock Compensation Expense Equity Incentive Plan On April 12, 2022, the Company’s board of directors approved The Singing Machine Company, Inc. 2022 Equity Incentive Plan. The equity plan provides for the issuance of equity incentive awards, such as stock options, stock appreciation rights, stock awards, restricted stock, stock units, performance awards and other stock or cash-based awards to the Company’s employees, officers, directors, consultants, agents, advisors and independent contractors. As of March 31, 2025, there were 1,500 shares of common stock authorized for issuance under the plan. Of this amount, awards representing 1,183 shares of common stock had been granted under the plan and 317 shares remained available for issuance under the plan. The Company did not issue any share-based awards under the plan during the three months ended March 31, 2025 and 2024, and no shares were forfeited during the three months ended March 31, 2025. As a result, as of March 31, 2025, there were 317 shares of common stock available for issuance under the plan. As of March 31, 2025, there was an unrecognized expense of $ 80,000 remaining on stock options currently vesting over time with an approximate weighted average of three months remaining until the options would be fully vested. The vested options outstanding as of March 31, 2025, had no intrinsic value. Note 10 – Net Loss Per Share The computations of basic and dilutive loss per share of commons stock outstanding for the three months ended March 31, 2025 and 2024 are as follows: Schedule of Basic and Diluted Loss Per Share Three Months Ended Three Months Ended March 31, 2025 March 31, 2024 Net loss available to common shareholders $ ( 9,191,000 ) $ ( 2,367,000 ) Basic and diluted weighted average of common stock outstanding 1,972,869 32,090 Basic and diluted loss per common share ( 4.66 ) ( 73.76 ) 15 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) The computation of the fully diluted weighted average number of shares of common stock outstanding for the three months ended March 31, 2025 and 2024 is as follows: Schedule of Diluted Weighted Average Number of Shares Three Months Ended Three Months Ended March 31, 2025 March 31, 2024 Basic weighted average common shares outstanding 1,972,869 32,090 Effect of dilutive stock options - - Diluted weighted average of common shares outstanding 1,972,869 32,090 Basic net loss per share is based on the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share reflects the potential dilution assuming shares of common stock underlying in-the-money options and warrants have been issued upon the exercise of the options and warrants and the proceeds thereof were used to purchase shares of the Company’s common stock at the average market price during the period using the treasury stock method. For the three months ended March 31, 2025, 488 shares of common stock underlying stock options and 1,138,163 shares of common stock underlying warrants were excluded from the calculation of diluted net loss per share as the result would have been anti-dilutive. For the three months ended March 31, 2024, 454 shares of common stock underlying stock options and 4,511 shares of common stock underlying warrants were excluded from the calculation of diluted net loss per share as the result would have been anti-dilutive. Note 11 – Securities Transactions Regalia Ventures Stock Repurchase Transaction On November 1, 2024, the Company entered into a stock repurchase agreement with Regalia Ventures pursuant to which the Company agreed to repurchase the 5,495 shares from Regalia Ventures at a price per share equal to the higher of: (i) the closing price of the common stock on the last trading day immediately preceding the date of the repurchase agreement; or (ii) the highest volume weighted average price (VWAP) of the common stock during a pricing period of 10 consecutive trading days prior to the date of the repurchase agreement. The shares of common stock to be repurchased were originally issued to Regalia Ventures on November 21, 2023, pursuant to a certain stock purchase agreement dated November 20, 2023. The Company recorded an accrued liability in the amount of the repurchase price, which was $ 472,000 , as of December 31, 2024 as there were no further conditions that needed to be satisfied prior to the closing date other than the issuance of the promissory note and the delivery of the shares. On February 18, 2025, the date of the closing of the transaction, the Company issued a promissory note to Regalia Ventures in the amount of $ 472,000 , which was the principal amount of the purchase price. The note was due and payable on demand and accrued interest at the rate of 10% per year. The Company incurred $ 1,000 for interest expense for the three months ended March 31, 2025 related to this promissory note. On February 27, 2025, the Company paid off the note in full. Regalia Ventures is owned and controlled by Jay B. Foreman, who serves as a member of the Company’s board of directors. 16 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) Stingray Group Stock Repurchase Transaction On December 3, 2024, the Company entered into a stock repurchase agreement with Stingray Group pursuant to which the Company agreed to repurchase the 5,495 shares from Stingray Group at a price per share equal to the higher of: (i) the closing price of the common stock on the last trading day immediately preceding the date of the repurchase agreement; or (ii) the highest VWAP of the common stock during a pricing period of 10 consecutive trading days prior to the date of the repurchase agreement. The shares of common stock to be repurchased were originally issued to the Stingray Group on November 21, 2023, pursuant to a certain stock purchase agreement dated November 20, 2023. The Company recorded an accrued liability in the amount of the repurchase price, which was $ 286,000 , as of December 31, 2024 as there were no further conditions that needed to be satisfied prior to the closing date other than the issuance of the promissory note and the delivery of the shares. On February 18, 2025, the date of the closing of the transaction, the Company issued a promissory note to Stingray Group in the amount of $ 286,000 , which was the principal amount of the purchase price. The note was due and payable on demand and accrued interest at the rate of 10% per year. The Company incurred $ 3,000 for interest expense for the three months ended March 31, 2025 related to this promissory note. On April 3, 2025, the Company paid off the note in full. Mathieu Peloquin is the Senior Vice-President, Marketing and Communications of Stingray Group and serves as a member of the Company’s board of directors. December 2024 Public Offering On December 4, 2024, the Company entered into a securities purchase agreement in connection with a public offering of an aggregate of 21,000 shares of its common stock, pre-funded warrants to purchase up to 258,412 shares of common stock, Series A warrants to purchase up to 279,412 shares of common stock, and Series B warrants to purchase up to 279,412 shares of common stock. Each share of common stock, or a pre-funded warrant in lieu thereof, was sold together with the accompanying warrants to purchase one share of common stock. The Company received aggregate gross proceeds upon the closing of the offering of approximately $ 9,000,000 , before deducting placement agents’ fees and other offering expenses. The Series A and B warrants were exercisable only upon receipt of such shareholder approval as may be required by the applicable rules and regulations of the Nasdaq Stock Market, LLC (the “Nasdaq”) to permit the exercise of the Series A and B warrants . The Series A and B warrants include an exercise price adjustment feature upon shareholder approval, whereby the exercise price will adjust to the greater of the lowest daily volume weighted average price during the reset period or the floor price, which was $ 6.844 per share, with a proportional increase in the number of warrant shares. The Company assessed the Series A and B warrants under ASC 480 and ASC 815 and determined that the Series A and B warrants needed to be classified as liabilities as they did not meet the requirements to be considered indexed to the Company’s own stock, due to: (a) the adjustment to the exercise price tied to shareholder approval, and (b) the potential change in the settlement amount of the Series B warrants upon an alternative cashless exercise election. Additionally, the Company concluded at issuance that it would not have sufficient authorized and available shares of common stock to settle the Series A and B warrants. See Note 13 – Derivative Liability . 17 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) On January 13, 2025, the Company’s stockholders approved the issuance of the Series A and B warrants, at which time all of the Series A and B warrants became exercisable. This approval triggered an adjustment to the exercise price of the Series A warrants to $ 8.38 . In connection with this approval, the holders of the Series B Warrants exercised their warrants in full under the alternative cashless exercise provision, resulting in the issuance of 1,910,975 shares of common stock and no additional proceeds received by the Company. The warrant liability reflected on the Company’s consolidated balance sheet at December 31, 2024 was reclassified to additional paid-in capital on the Company’s condensed consolidated balance sheet at March 31, 2025. The Company recognized a loss of $ 6,468,000 for the change in the fair value measurement of the warrant liability as of the date the warrant liability was reclassified to equity. Note 12 – Derivative Liability During the three months ended March 31, 2025, the Company had derivative warrant liabilities that were measured at fair value on a recurring basis. These fair value measurements were estimated using a Monte Carlo simulation model, with the key inputs described below. Each of these fair value measurements was considered to be a Level 3 measurement by the Company as they used significant unobservable inputs, including the probability and expected date of stockholder approval. The key inputs for the Series A warrant liabilities were as follows: Schedule of Derivative Warrant Liabilities Warrant Liability – Series A Warrants January 17, 2025 December 31, 2024 Stock price on valuation date $ 8.38 $ 18.00 Exercise price $ 8.38 $ 34.00 Number of warrants 1,133,652 279,412 Remaining term (years) 4.88 4.93 Annual equity volatility 126.0 % 113.0 % Annual volume volatility 377.0 % 379.0 % Risk-free interest rate 4.32 % 4.29 % Expected stockholder approval date January 13, 2025 January 14, 2025 Expected stockholder approval probability 100 % 50 % The Series B warrant liabilities were remeasured on each exercise date based on the closing price of the Company’s common stock on the date the warrants were exercised. On January 13, 2025, the Company’s shareholders approved the issuance of the Series A and Series B Warrants. This approval triggered the adjustment to the exercise price described above. In connection with this approval, the holders of the Series B warrants exercised their warrants in full under the alternative cashless exercise provision, resulting in the issuance of 1,910,975 shares of common stock and no additional proceeds received by the Company. The Series A warrants became exercisable for 1,133,652 shares of common stock at an exercise price of $ 8.38 per share after the shareholder approval adjustment was finalized on March 17, 2025. In addition, the Company reassessed the classification of the Series A warrants after the shareholder approval adjustment was finalized, concluding that the Series A warrants now met the requirements for equity classification under ASC 480 and ASC 815. The Company adjusted the Series A Warrants to fair value upon reclassification and reclassified that value to additional paid-in capital during the three months ended March 31, 2025. 18 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) The following table provides a roll-forward of the fair value of the derivative liabilities described above during the three months ended March 31, 2025: Schedule of fair value of the Derivative Liabilities Series A Warrants Series B Warrants Total Warrant Liabilities Balance at December 31, 2024 $ 5,456,000 $ 11,147,000 $ 16,603,000 Exercises — ( 15,214,000 ) ( 15,214,000 ) Loss on change in fair value 2,401,000 4,067,000 6,468,000 Reclassification to equity ( 7,857,000 ) — ( 7,857,000 ) Balance at March 31, 2025 $ — $ — $ — The following table provides a roll-forward of the number of shares of common stock underlying warrants issued during the three months ended March 31, 2025: Schedule of Shares of Common Stock Underlying Warrants Series A Warrants Series B Warrants Other Warrants Total Balance at December 31, 2024 279,412 279,412 4,511 563,335 Exercises — ( 279,412 ) — ( 279,412 ) Balance at March 31, 2025 279,412 — 4,511 283,923 The Company did not issue any warrants during the three months ended March 31, 2024 and did not have any warrants outstanding as of March 31, 2024. Note 13 – Income Taxes The Company’s income tax provision for the three months ended March 31, 2024, was approximately $ 52,000 due to income taxes due on amended federal tax returns filed for 2020 and 2021 which took into account the one-time refunds received from the Employee Retention Credit program. The Company did not have any provision for income taxes for the three months ended March 31, 2025. The Company’s income tax expense differs from the expected tax expense based on statutory rates primarily due to full valuation allowance for all of its subsidiaries for the three months ended March 31, 2025 and 2024. 19 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) Note 14 – Segment Information and Revenue Disaggregation Segment Information Pursuant to ASC 280, the Company’s Chief Executive Officer serves as the Company’s Chief Operating Decision Maker (“CODM”) for the purposes of ASC 280. The CODM concluded that the Company operates two reportable segments. One segment consists of its Singing Machine business and the other segment consists of its SemiCab business. The CODM manages the Company’s operations and business separately for each operating segment and uses net sales and net loss to allocate resources, making operating decisions and evaluating financial performance. The CODM also uses net sales and net loss, along with non-financial inputs and qualitative information, to evaluate the Company’s performance, establish compensation, monitor budget versus actual results, and decide the level of investment in various operating activities and other capital allocation activities. The following table details the revenues, significant expenses and other segment items regularly provided to the CODM: Schedule of Details the Revenue, Significant expenses and Other Segment Three Months Ended March 31, 2025 Three Months Ended March 31, 2024 Singing Machine SemiCab Total Singing Machine SemiCab Total Revenues $ 1,870,000 $ 123,000 $ 1,993,000 $ 2,426,000 $ - $ 2,426,000 Less: Adjusted cost of revenues 1,364,000 129,000 1,493,000 1,924,000 - 1,924,000 Adjusted sales and marketing 764,000 - 764,000 630,000 - 630,000 Adjusted general and administrative (1) 1,933,000 480,000 2,413,000 2,088,000 - 2,088,000 Adjusted depreciation and amortization 33,000 15,000 48,000 52,000 - 52,000 Share based compensation 85,000 - 85,000 19,000 - 19,000 Change in fair value of warrant liability 6,468,000 - 6,468,000 - - - Gain on disposal of fixed assets - - - - - Loss on issuance of warrants - - - - - - Interest expense - 16,000 16,000 28,000 - 28,000 Other income (expense), net - - - - - - Income tax provision - - - 52,000 - 52,000 Segment net loss $ ( 8,777,000 ) $ ( 517,000 ) $ ( 9,294,000 ) $ ( 2,367,000 ) $ - $ ( 2,367,000 ) Total segment assets $ 7,515,000 $ 2,160,000 $ 9,675,000 (1) Excludes depreciation and amortization, share-based compensation, impairment of goodwill and impairment of a note receivable The following reconciles total segment assets to consolidated total assets as of March 31, 2025: Schedule of Reconcilation of Segment Assets to Consolidated March 31, December 31, 2025 2024 Total segment assets $ 9,675,000 $ 17,516,000 Goodwill 786,000 786,000 Total Assets $ 10,461,000 $ 18,302,000 The total segment assets of $ 17,516,000 at December 31, 2024 were comprised of $ 16,301,000 for the Singing Machine segment and $ 1,215,000 for the SemiCab segment. 20 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) Revenue Disaggregation The Company disaggregates revenues by product line and major geographic region as most of its revenue is generated by the sales of karaoke products. Revenue by product line is as follows: Schedule of Revenue by Product Line Three Months Ended March 31, 2025 March 31, 2024 Classic karaoke machines $ 742,000 $ 1,046,000 Licensed products 14,000 90,000 Kids youth electronics 67,000 65,000 Microphones and accessories 783,000 964,000 Music subscriptions 264,000 261,000 Logistics 123,000 - Total revenue $ 1,993,000 $ 2,426,000 All of the Company’s sales during the three months ended March 31, 2025 and 2024 were in North America. The geographic area of sales is based primarily on where the product was delivered. Notes 15 – 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. 21 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) U.S. Trade Policies U.S. government administration and members of the U.S. Congress have recently implemented significant changes in U.S. trade policy and taken certain actions that are impacting the Company’s business, including imposing tariffs on certain goods imported into the United States. Some of these changes have triggered retaliatory actions by affected countries and may result in “trade wars” and increased costs for goods imported into the United States. All of the Company’s products are manufactured and imported from China and the Company sells its products in Canada and other countries. The implementation of tariffs has resulted in an increase in the cost of the Company’s products. If the Company is unable to mitigate these increased costs through price increases, it may experience lower sales which would negatively impact its revenue, gross profit margin and results of operations. Revenue Concentration The Company derives a majority of its revenues from sales of its products in North America by retailers. 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 March 31, 2025, 61 % of accounts receivable were due from two customers in North America that each individually owed more than 10% of the Company’s total accounts receivable. At December 31, 2024, 68 % of accounts receivable were due from three customers in North America that each individually owed more than 10% of the Company’s total accounts receivable. Revenue derived from the Company’s top four customers and top three customers collectively as a percentage of total net sales was 85 % and 84 % of our revenue, respectively, for the three months ended March 31, 2025 and 2024, respectively. Revenues from customers representing greater than 10% of total net sales that were derived from the Company’s top four customers as a percentage of total net sales for the three months ended March 31, 2025 was 31 %, 25 %, 15 %, and 13 %. Revenues from customers representing greater than 10% of total net sales that were derived from our top two customers as a percentage of total net sales for the three months ended March 31, 2024, were 60 % and 14 %. The loss of any of these customers could have an adverse impact on the Company. Note 16 – Related Party Transactions Stingray Group Subscription Payments The Company has a music subscription sharing agreement with Stingray Group. For the three months ended March 31, 2025 and 2024, the Company received music subscription revenue of $ 264,000 and $ 240,000 , respectively, from Stingray Group. As of March 31, 2025 and December 31, 2024, the Company had $ 357,000 and $ 212,000 , respectively, due from Stingray Group for music subscription reimbursement. 22 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) SMCB VIE Analysis The Company determined that SMCB, which is a subsidiary of SemiCab, Inc., is 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. The Company further determined that it is not the primary beneficiary of SMCB because the Company does not have the power to direct or control SMCB’s significant activities related to its business. Accordingly, the Company has not consolidated SMCB’s results of operations and financial position in its consolidated financial statements. 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 three months ended March 31, 2025, the Company made advances to SMCB in the amount of $ 672,000 . During the three months ended March 31, 2025, SMCB charged $ 172,000 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 March 31, 2025, a total of $ 1,640,000 of loans were outstanding under the loan agreement, and a total of $ 860,000 remained available for future borrowings under the loan agreement as of March 31, 2025. As of March 31, 2025, SMCB had not made any interest payments due under the loan agreement. As a result, the loans were in default as of March 31, 2025. 23 Algorhythm Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2025 and 2024 (Unaudited) Note 17 – 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. Pro Forma Information The unaudited pro forma financial information below presents the effects of the equity purchase agreement 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 three months ended March 31, 2025 and 2024 reflect the combined performance of the Company and SMCB 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 equity purchase agreement occurred on January 1, 2024, nor does it attempt to forecast future consolidated results of operations. Schedule of Pro Forma Financial Information March 31, 2025 March 31, 2024 Three Months Ended March 31, 2025 March 31, 2024 Net revenue $ 2,990,000 $ 2,991,000 Operating loss from continuing operations $ 3,037,000 $ 2,645,000 Net loss available to common stockholders $ 9,378,000 $ 2,545,000 The pro forma results for the three months ended March 31, 2025, include a net increase in operating expenses of $ 20,000 for amortization of stock compensation expense associated with the membership interests granted to Ajesh Kapoor and Vivek Sehgal under their respective amended and restated employment agreements. The pro forma results for the three months ended March 31, 2024, include a net increase in operating expenses of $ 40,000 , consisting of legal expenses of approximately $ 20,000 associated with the acquisition of SMCB and $ 20,000 associated with the membership interests granted to Ajesh Kapoor and Vivek Sehgal under their respective amended and restated employment agreements. 24 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this report contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this report are based on information available to us on the date hereof, and, except as required by law, we assume no obligation to update any such forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth herein under Item 1A. Risk Factors and elsewhere in this report. The following should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this report and the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2024. Overview We are an artificial intelligence (“AI”) technology and consumer electronics holding company with two primary business units – SemiCab and Singing Machine. SemiCab is an 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. SemiCab SemiCab is a cloud-based Collaborative Transportation Platform built to achieve the scalability required to predict and optimize loads and the use of trucks. To orchestrate collaboration across manufacturers, retailers, distributors, and their carriers, SemiCab uses real-time data from API-based load tendering and pre-built integrations with 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. 25 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 Corporate Events Name and Symbol Change Effective September 5, 2024, our Certificate of Incorporation was amended to change our name from “The Singing Machine Company, Inc.” to “Algorhythm Holdings, Inc.” In addition, effective September 8, 2024, our ticker symbol was changed from “MICS” to “RIME.” Reverse Stock Split and Increase in Authorized Shares On January 13, 2025, our stockholders voted to authorize our board of directors to effect a reverse stock split of the outstanding shares of our common stock at a specific ratio within a range of 1-for-10 to a maximum of 1-for-250 and to amend our certificate of incorporation to increase the number of authorized common stock from 100,000,000 to 800,000,000 shares. On January 14, 2025, our board of directors approved a reverse stock split of 1-for-200 ratio and approved the filing of a certificate of amendment to our certificate of incorporation to effect the reverse stock split and to increase our authorized shares of common stock from 100,000,000 to 800,000,000. The reverse stock split took effect on February 10, 2025. In accordance with SEC rules and regulations, all share numbers and prices throughout this report and our consolidated financial statements reflect post-reverse stock split numbers. Acquisition of SMCB On May 2, 2025 (the “Closing Date”), we and SemiCab Holdings entered into an equity purchase agreement with SemiCab Inc. pursuant to which: (i) SemiCab Holdings purchased 9,999 shares of the issued and outstanding equity shares, Rs. 10 par value, of SMCB, representing 99.99% of the issued and outstanding equity shares of SMCB, for $1,750,000, the payment of which amount was evidenced by the issuance of a promissory note by us to SemiCab, Inc., and (ii) we purchased the 20% membership interest in SemiCab Holdings then held by SemiCab, Inc. for aggregate consideration consisting of 119,742 shares of our common stock. The promissory note provides that $1,500,000 is due and payable by us on the first anniversary of the Closing Date and the remaining $250,000 is due and payable by us on the 18-month anniversary of the Closing Date. The promissory note bears interest at six percent per annum. 26 On the Closing Date, we and SemiCab Holdings entered into an amended and restated employment agreement with each of Ajesh Kapoor and Vivek Sehgal pursuant to which Mr. Kapoor agreed to serve as the Chief Executive Officer and Chief Technology Officer of SemiCab Holdings and Mr. Sehgal agreed to serve as the Chief Product Officer of SemiCab Holdings. Pursuant to the terms of the employment agreements, SemiCab Holdings granted Messrs. Kapoor and Sehgal a membership interest in SemiCab Holdings with three quarters of each such grant subject to certain forfeiture rights tied to continued employment with SemiCab Holdings. Additionally, Mr. Kapoor was granted the right to serve as a member of our board of directors and the right to appoint an additional member of our board of directors upon the occurrence of certain specified events. Also on the Closing Date, we, SemiCab Holdings, Ajesh Kapoor and Vivek Sehgal entered into an amended and restated limited liability company agreement for SemiCab Holdings which sets forth the terms and conditions governing the operation and management of SemiCab Holdings. Strategy Our SemiCab and Singing Machine businesses are each in very different stages of development. Accordingly, our plans for growing each of them are very different. SemiCab is an early-stage business that is not yet contributing a material amount of revenue to us. We intend to invest in our SemiCab business to develop and grow it into a significant revenue producer for us. This will involve investments in the continued research and development of its technology, the hiring of additional qualified employees, marketing and advertising initiatives, and back-office support. While SemiCab is a nascent business, it has already acquired several multinational consumer products companies as customers. We believe that as existing customers experience the benefits of our SemiCab logistics and distribution solutions, they will begin to increase their use of SemiCab. We also believe that SemiCab’s proven ability to improve truck utilization rates and improve trucking capacity without adding more trucks, drivers or driven miles will be of substantial interest to additional companies that can benefit from SemiCab. We acquired the United States component of our SemiCab business on July 3, 2024 and acquired the India component of our SemiCab business on May 2, 2025. We may make additional investments in companies operating in the AI distribution and logistics space that we believe are complementary to our SemiCab business. Our investments could involve an acquisition of the assets or equity of complementary companies or businesses, or could involve a strategic partnership or joint venture with complementary companies or businesses. We believe that additional investments could provide us with new AI logistics and distribution technologies, services and resources that we can implement across our entire SemiCab business, or could help us to more quickly expand our SemiCab footprint into other parts of the world. We are actively evaluating additional opportunities to expand our SemiCab business through investments in complementary AI logistics and distribution businesses and companies. In contrast to our SemiCab business, our Singing Machine business has been successfully operating worldwide for decades. Our karaoke products are well-known and established with retailers and consumers in the countries in which we sell them. Our plan for Singing Machine is to continue to focus on customer retention through loyalty programs for the online and brick-and-mortar retailers offering our products and compelling offer promotions, discounts, and special deals to attract customers and increase conversions. We also intend to reduce costs through overhead trimming and the use of new selling and marketing methodologies, leverage data analytics to better understand new trends in consumer preferences for our products, explore new product features and product offerings, and support our new and existing products with fun and exciting digital marketing and advertising initiatives. We may also explore entering new markets that may offer more profitable avenues for our products. 27 Financial Results We generated net sales of $1,993,000 for the three-month period ended March 31, 2025, compared to $2,426,000 for the three-month period ended March 31, 2024. The decrease in net sales was due primarily to the loss of retail shelf space at two major customers. Gross profit decreased $2,000 to $500,000, or 25.1% of net sales, for the three-month period ended March 31, 2025, compared to $502,000, or 20.7% of net sales, for the three-month period ended March 31, 2024. The decrease was due primarily to the decrease of $433,000 for net sales, partially offset by a corresponding decrease of $431,000 for cost of goods sold associated with less products being manufactured for sale. Our operating expenses increased $521,000 to $3,310,000 for the three-month period ended March 31, 2025, from $2,789,000 for the three-month period ended March 31, 2024, primarily due to an increase in general and administrative expenses incurred for the growth and development of our SemiCab business. As a result, we incurred a loss from operations of $2,810,000 for the three-month period ended March 31, 2025 compared to $2,287,000 for the three-month period ended March 31, 2024. We generated net losses available to common stockholders of $9,191,000, or $4.66 per share of common stock, for the three-month period ended March 31, 2025, compared to $2,367,000, or $73.76 per share of common stock, for the three-month period ended March 31, 2024. We had total assets of $10,461,000 and $18,302,000 at March 31, 2025 and December 31, 2024, respectively. Net cash used by operating activities was $3,108,000 for the three-month period ended March 31, 2025 compared to $2,557,000 for the three-month period ended March 31, 2024. The most significant contributor to the increase in our net loss available to common stockholders was a one-time, non-cash charge of $6,468,000 for the change in fair value of warrants that we issued in connection with the public offering of securities that we completed on December 6, 2024. In that offering, we sold Series A warrants and Series B warrants that had certain features and were subject to certain contingencies that resulted in us having to record a warrant liability of $16,603,000 on our balance sheet at December 31, 2024. All of the contingencies that the Series A warrants were subject to were satisfied in January 2025, and all of the Class B warrants were exercised in full during January and February 2025. We re-measured the warrant liability for the Class A and B warrants on their respective measurement dates and adjusted the liability to fair value which resulted in us recording the non-cash charge of $6,468,000 for the change in fair value of warrants. The warrant liability was reclassified as equity on our condensed consolidated balance sheet for our fiscal quarter ended March 31, 2025. As a result, we did not have any warrant liability on our condensed consolidated balance sheet at March 31, 2025 and will not incur any further non-cash charges for the change in fair value of warrants. 28 Outlook We expect net sales of our Singing Machine karaoke products to decrease over the next 12 months due to the negative impact on our business from recently implemented tariffs on our products manufactured in China. However, we expect revenue generated from our SemiCab business to increase over the next 12 months as we generate more business from our growing customer base in the United States and India. As a result, total net sales are expected to increase over the next 12 months. We expect gross profit to remain at similar levels over the next 12 months as costs of goods sold decrease commensurate with the decrease in net sales of our karaoke products. We expect operating expenses to remain flat, if not decrease, over the next 12 months as we implement initiatives designed to reduce general and administrative expenses, particularly those related to marketing and advertising initiatives. The reductions achieved may be partially offset by legal and accounting expenses that we incur as we engage in additional capital-raising activities as needed to fund our business and expenses that we incur to fund the growth and development of our SemiCab business. Net loss available to common stockholders is expected to decrease substantially during the next 12 months primarily due to the fact that we do not expect to incur any additional non-cash charges for the change in fair value of warrants, and due to the decreases in general and administrative expenses that we intend to generate. Notwithstanding the foregoing, in the event we complete additional acquisitions of controlling or non-controlling financial interests in other complementary businesses or companies through mergers, acquisitions, joint ventures or other strategic initiatives, such as the acquisition of the United States component of our SemiCab business on July 3, 2024 and the acquisition of the India component of our SemiCab business on May 2, 2025, our financial results will include and reflect the financial results of the target entities. Accordingly, the completion of any such transactions in the future may have a substantial beneficial or negative impact on our business, financial condition and results of operations. Comparison of the Three-Month Periods Ended March 31, 2025 and 2024 Net Sales Net sales consist primarily of sales of our Singing Machine karaoke products and sales of our SemiCab logistics and distribution solutions. Net sales decreased $433,000 to $1,993,000 for the three-month period ended March 31, 2025, compared to $2,426,000 for the three-month period ended March 31, 2024. The decrease in net sales was due primarily to the loss of retail shelf space at two major customers. We expect net sales of our Singing Machine karaoke products to decrease over the next 12 months due to the negative impact on our business from recently implemented tariffs on our products manufactured in China. However, we expect revenue generated from our SemiCab business to increase over the next 12 months as we generate more business from our growing customer base in the United States and India. Cost of Goods Sold Cost of goods sold consists primarily of costs for raw materials and the manufacturing of our Singing Machine karaoke products. We incurred only a minimal amount of costs in connection with our SemiCab business. Cost of goods sold decreased $431,000 to $1,493,000 for the three-month period ended March 31, 2025, compared to $1,924,000 for the three-month period ended March 31, 2024. Our decrease in net sales of our karaoke products resulted in a corresponding decrease in products manufactured, resulting in lower manufacturing costs. We expect costs of goods sold to decrease over the next 12 months commensurate with the decrease in net sales of our karaoke products due to the negative impact on our business of recently implemented tariffs on our products manufactured in China. 29 Operating Expenses Operating expenses consist of selling expenses and general and administrative expenses. Selling Expenses Selling expenses consist primarily of marketing and advertising expenses that we incur in connection with advertising campaigns and online advertising initiatives that we engage in to generate sales of our Singing Machine karaoke products. We did not incur any selling expenses in connection with our SemiCab business. Selling expenses increased $134,000 to $764,000 for the three-month period ended March 31, 2025, from $630,000 for the three-month period ended March 31, 2024. The increase was due primarily to an increase in online marketing and social media advertising campaigns. We expect selling expenses to decrease over the next 12 months as we engage in fewer, but more focused, marketing and advertising initiatives and as we navigate the negative impact of recently implemented tariffs on sales of our karaoke products. General and Administrative Expenses General and administrative expenses consist primarily of payroll expenses, legal and accounting expenses, warehouse expenses and rent expense associated with our Singing Machine business, and general and administrative expenses incurred in the development and growth of our SemiCab business. General and administrative expenses increased $387,000 to $2,546,000 for the three-month period ended March 31, 2025, compared to $2,159,000 for the three-month period ended March 31, 2024. The increase was due primarily to increases of $480,000 for general and administrative expenses incurred in the development and growth of our SemiCab business. We expect general and administrative expenses to decrease over the next 12 months as we implement actions designed to reduce general and administrative expenses. The reductions achieved may be partially offset by an increase in expenses that we incur to fund the growth and development of our SemiCab business. Other Expenses Other expenses consists primarily of a non-cash loss that we incurred for the change in fair value of the warrants in connection with the public offering of securities that we completed on December 6, 2024. We incurred only a minimal amount of other expenses in connection with our SemiCab business. Other expenses increased $6,456,000 to $6,468,000 for the three-month period ended March 31, 2025, compared to $28,000 for the three-month period ended March 31, 2024. The increase was due primarily to an increase of $6,468,000 for the change in fair value of warrants. Net Loss Attributable to Non-Controlling Interest Net loss attributable to non-controlling interest consists of the loss allocated to SemiCab, Inc., which owns 20% of the outstanding membership interests of SemiCab Holdings. SemiCab Holdings owns our SemiCab business. We acquired our SemiCab business from SemiCab, Inc. on July 3, 2024, and, as part of the transaction, granted SemiCab, Inc. a 20% membership interest in SemiCab Holdings. The net loss attributable to non-controlling interest of $103,000 represents the amount of loss incurred by SemiCab that was allocated to SemiCab, Inc. through its 20% membership interest in SemiCab Holdings for the three-month period ended March 31, 2025. We expect net loss attributable to non-controlling interest to increase over the next 12 months as we continue to invest in the development and growth of SemiCab’s business. 30 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 March 31, 2025, our cash balance was $3,296,000. Net cash used by operating activities was $3,108,000 during the three-month period ended March 31, 2025, compared to $2,557,000 during the three-month period ended March 31, 2024. The increase of $551,000 was due primarily to an increase of $6,927,000 for net loss and a decrease of $1,197,000 for accounts receivable. This was partially offset by increases of $6,468,000 for loss on change in fair value of warrants that we incurred in connection with the public offering of securities that we completed on December 6, 2024 and $892,000 for refunds due to customers. Net cash used by investing activities was $673,000 during the three-month period ended March 31, 2025. We did not have any cash flows from investing activities during the three-month period ended March 31, 2024. The increase of $673,000 was due primarily to increases of $672,000 for advances to SMCB under our loan agreement with them. Net cash used by financing activities was $473,000 for the three-month period ended March 31, 2025, compared to $21,000 for the three-month period ended March 31, 2024. The increase of $452,000 was due primarily to an increase of $473,000 for repayments of promissory notes to related parties. To date, our capital needs have been met through cash generated by our operations, sales of our equity securities and the use of short- and long-term debt to fund our operations. We have used these sources of capital to pay virtually all of the costs and expenses that we have incurred to date. These costs and expenses have been comprised primarily of the professional fees, employee compensation expenses, and general and administrative expenses discussed above. We intend to continue to rely upon each of these sources to fund our operations and expansion efforts, including additional acquisitions of controlling or non-controlling financial interests in other complementary businesses and companies during the next 12 months . We can provide no assurance that these sources of capital will be adequate to fund our operations and expansion efforts during the next 12 months. If these sources of capital are not adequate, we will need to obtain additional capital through alternative sources of financing. We may attempt to obtain additional capital through the sale of equity securities or the issuance of short- and long-term debt. If we raise additional funds by issuing shares of our common stock, our stockholders will experience dilution. If we raise additional funds by issuing securities exercisable or convertible into shares of our common stock, our stockholders will experience dilution in the event the securities are exercised or converted, as the case may be, into shares of our common stock. Debt financing may involve agreements containing covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, issuing equity securities, making capital expenditures for certain purposes or above a certain amount, or declaring dividends. In addition, any equity securities or debt that we issue may have rights, preferences and privileges senior to those of the shares of common stock held by our stockholders. 31 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 August 26, 2024, we received a letter from the Nasdaq indicating that we were not in compliance with Nasdaq Listing Rule 5550(a)(2) because the closing bid price per share for our common stock had closed below $1.00 for more than 30 consecutive business days. We were given until February 24, 2025, to regain compliance with the rule. 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 its securities would be subject to delisting from Nasdaq unless we timely request a hearing before the Nasdaq Hearings Panel. 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). We will be subject to a mandatory panel monitor for a period of one year from March 25, 2025. If, within that one-year monitoring period, the Nasdaq Listing Qualifications staff finds that we are again out of compliance with the minimum bid price requirement, notwithstanding Nasdaq Listing Rule 5810(c)(2), then the staff will issue a delist determination letter and we will have an opportunity to request a new hearing with the initial Nasdaq hearing panel or a newly convened hearing panel if the initial panel is unavailable. Off-Balance Sheet Arrangements As of March 31, 2025, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, that had been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. 32 Critical Accounting Estimates Our interim financial statements were prepared in accordance with United States generally accepted accounting principles, which require management to make subjective decisions, assessments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions increases, such judgements become even more subjective. While management believes that its assumptions are reasonable and appropriate, actual results may be materially different than estimated. Our critical accounting estimates and assumptions have not materially changed from those identified in our Annual Report on Form 10-K for the year ended December 31, 2024. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not required for small reporting companies. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures We have established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our principal executive officer and principal financial officer, with the assistance of other members of our management, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and is accumulated and communicated to our management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Changes in Internal Controls over Financial Reporting Our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was not effective at December 31, 2024 due to the material weaknesses described below. 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. 33 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. 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. Despite the material weaknesses identified above, we believe that the condensed consolidated financial statements included in the period covered by this report fairly present, in all material aspects, our financial condition, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles. During our fiscal quarter ended March 31, 2025, there were no additional changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. PART II - OTHER INFORMATION Item 1. Legal Proceedings. On December 21, 2023, Ault Lending, LLC (“Ault Lending”), a wholly owned subsidiary of Ault Alliance, Inc., which was at one time one of our largest stockholders, filed a derivative shareholder action in Delaware Chancery Court against us, our board of directors, Stingray Group and Regalia Ventures for alleged breach of fiduciary duty in approving a recent above-market private placement equity transaction. The complaint alleged that we and our board of directors followed an inadequate process in evaluating the private placement transaction that we completed in November 2023 and that we and our board of directors entered into the transaction with an intent to dilute Ault’s ownership stake in us. 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) rescinding our sale of shares to Stingray Group and Regalia Ventures , and (iii) awarding damages and attorney’s fees to Ault Lending. 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. 34 There were no other material changes to the disclosures made in Part I – Item 3. Legal Proceedings of our Annual Report on Form 10-K for the year ended December 31, 2024 regarding these matters. Item 1A. Risk Factors Not required for small reporting companies. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On February 13, 2025, we issued 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 to Alex Andre pursuant to the terms of the employment agreement that he entered into with us in connection with his appointment as our Chief Financial Officer and General Counsel. 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 shall each 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. The securities were issued to Mr. Andre in a private placement transaction that was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person. Item 3. Defaults Upon Senior Securities None. 35 Item 4. Mine Safety Disclosures Not applicable. Item 5. Other Information Rule 10b5-1 Trading Arrangements During the three-month period ended March 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 6. 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 10.1 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 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 8, 2025) 10.2 Promissory Note, dated May 2, 2025, issued by Algorhythm Holdings, Inc. in favor of SemiCab, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 8, 2025) 10.3 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 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 8, 2025) 31.1* Certification of Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a) 31.2* Certification of Chief Financial Officer required by Rule 13a-14(a) or 15d-14(a) 32.1** Certification of Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document * Filed herewith ** Furnished herewith. 36 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALGORHYTHM HOLDINGS, INC. Date: May 15, 2025 By: /s/ Gary Atkinson Gary Atkinson Chief Executive Officer (Principal Executive Officer) Date: May 15, 2025 By: /s/ Alex Andre Alex Andre Chief Financial Officer & General Counsel (Principal Financial and Accounting Officer) 37