What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2025-05-15 compared with 2024-11-19 · 772 added, 907 removed, 147 unchanged (92% of the section changed)

3 unchanged sentences

CONSOLIDATED BALANCE SHEETS

September 30, 2024

March 31, 2025

December 31, 2024

1 unchanged sentence

Accounts receivable, net of allowances of $ 396,000 and $ 275,000 , respectively

Due from Banks

Accounts receivable, related party

Accounts receivable

Note receivable, related party

Returns asset

2 unchanged sentences

Property and equipment, net

Operating leases - right of use assets

Other non-current assets

5 unchanged sentences

Refund due to customer

Customer prepayments

Reserve for sales returns

Merchant cash advances payable

Notes payable

Warrant liability

Current portion of notes payable to related parties

Current portion of operating lease liabilities

Other current liabilities

Total Current Liabilities

Other liabilities

Notes payable to related parties, net of current portion

Operating lease liabilities, net of current portion

Total Liabilities

Commitments and Contingencies

Shareholders’ (Deficit) Equity

Shareholders’ Equity (Deficit)

Preferred stock, $ 1.00 par value;

1,000,000 shares authorized;

no shares issued and outstanding

no shares issued and outstanding at

March 31, 2025 and December 31, 2024

Common stock, $ 0.01 par value;

100,000,000 shares authorized;

11,079,678 issued and

9,752,755 shares outstanding at September 30, 2024 and 6,418,061 issued and outstanding at December 31, 2023.

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

Additional paid-in capital

3 unchanged sentences

Non-controlling interest

Total Algorhythm Holdings Shareholders’ Equity

Total Liabilities and Shareholders’ Equity

notes to the condensed consolidated financial statements

( 1,139,000 )

( 1,036,000 )

Treasury stock, 10,990 and - 0 - shares reserved at March 31, 2025 and 2024

Total Algorhythm Holdings Shareholders’ Equity (Deficit)

( 10,521,000 )

Total Liabilities and Shareholders’ Equity (Deficit)

See notes to the condensed

consolidated financial statements

Holdings, Inc.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF OPERATIONS

March 31, 2025

March 31, 2024

For the Three Months Ended

For the Nine Months Ended

September 30, 2024

September 30, 2023

September 30, 2024

September 30, 2023

March 31, 2025

March 31, 2024

Cost of Goods Sold

2 unchanged sentences

General and administrative expenses

Net (gain) loss on early termination of operating lease

( 3,874,000 )

Total Operating Expenses

Income (Loss) from Operations

Loss from Operations

( 2,810,000 )

( 2,287,000 )

Other (Expenses) Income

Gain on disposal of fixed assets

Gain from Employee Retention Credit Program refund

Other Expenses

Change in fair value of warrant liability

( 6,468,000 )

Interest expense

Total Other (Expenses) Income, net

Income (Loss) Before Income Tax Benefit

Total Other Expenses

( 6,484,000 )

Loss Before Income Tax Benefit

( 9,294,000 )

Income Tax Benefit (Provision)

( 2,315,000 )

Consolidated Net Income (Loss)

Income Tax Provision

( 9,294,000 )

( 2,367,000 )

Net (income) loss attributable to non-controlling interest

Net Income (Loss) Available to Common Stockholders

Net loss attributable to non-controlling interest

Net Loss Available to Common Stockholders

$ ( 9,191,000 )

$ ( 2,367,000 )

Income (Loss) per common share

Loss per common share

Basic and diluted

2 unchanged sentences

Basic and diluted

notes to the condensed consolidated financial statements

See notes to the condensed

consolidated financial statements

Holdings, Inc.

and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

the Three Months Ended September 30, 2024 and 2023

Additional Paid in

Non-Controlling

Balance at June 30, 2024

$ ( 34,401,000 )

$ ( 872,000 )

Net (loss) income

Sale of common stock, net of offering costs

Stock based compensation

Common stock issued for purchase of SemiCab Inc

Issuance of subsidiary stock to non-controlling interest

Balance at September 30, 2024

$ ( 148,000 )

$ ( 33,206,000 )

Additional Paid in

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

the Three Months Ended March 31, 2025 and 2024

Non-Controlling

Balance at June 30, 2023

$ ( 21,977,000 )

Stock based compensation

Balance at September 30, 2023

at December 31, 2024

$ ( 1,036,000 )

the Nine Months Ended September 30, 2024 and 2023

Additional Paid in

Non-Controlling

Balance at December 31, 2023

$ ( 49,172,000 )

1 unchanged sentence

( 9,191,000 )

Sale of common stock, net of offering costs

Stock based compensation

Common stock issued for purchase of SemiCab Inc

Issuance of subsidiary stock to non-controlling interest

Balance at September 30, 2024

( 9,294,000 )

of Series B warrants

Reclassification

of Series A warrants to equity

of common stock from related parties

at March 31, 2025

$ ( 1,139,000 )

Balance at December 31, 2022

$ ( 758,000 )

$ ( 58,363,000 )

at December 31, 2023

$ ( 25,915,000 )

Net income (loss)

( 2,367,000 )

Sale of common stock, net of offering costs

Sale of common stock warrants

Stock based compensation

Balance at September 30, 2023

at March 31, 2024

$ ( 28,282,000 )

4 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended

September 30, 2024

September 30, 2023

March 31, 2025

March 31, 2024

For the Three Months Ended

March 31, 2025

March 31, 2024

Cash flows from operating activities

2 unchanged sentences

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization of intangible assets

Depreciation and amortization

Reduction in SMCB loan in exchange for services

Provision for estimated cost of returns

Change in fair value of warrant liability

Provision for inventory obsolescence

Credit losses

Gain on termination of operating lease

Net gain from disposal of property and equipment

Reserve for sales returns

( 1,614,000 )

Stock-based compensation

Amortization of right of use assets

Change in net deferred tax assets

Changes in operating assets and liabilities:

Accounts receivable

( 3,982,000 )

Due from banks

Accounts receivable - related parties

( 3,424,000 )

Prepaid expenses and other current assets

Other non-current assets

Accounts payable

( 2,507,000 )

( 3,669,000 )

Accrued expenses

Refunds due to customers

( 1,053,000 )

Reserve for sales returns

Refunds due to customers

Prepaids from customers

Other liabilities

Net cash used in operating activities

( 3,108,000 )

Operating lease liabilities

Payment of early termination fee on operating lease termination settlement

Net cash (used in) provided by operating activities

( 2,557,000 )

Cash flows from investing activities

Purchase of property and equipment

Cash received from purchase of SemiCab Inc

Disposal of property and equipment

Advances to SMCB

Net cash used in investing activities

Cash flows from financing activities

Proceeds from sale of stock, net of offering costs

Payments on merchant cash advances payable

Net payment from revolving lines of credit

( 1,761,000 )

Net cash provided by (used in) financing activities

Repayment of note payable to related party

Net cash used in financing activities

Net change in cash

( 4,254,000 )

( 2,578,000 )

Cash at beginning of year

3 unchanged sentences

Non-Cash investing and financing cash flow information:

Common stock issued for purchase of SemiCab Inc

Equipment purchased under capital lease

Right of use assets exchanged for lease liabilities

notes to the condensed consolidated financial statements

ALGORHYTHM HOLDINGS, INC.

Reclassification of Series A warrants to equity

Common stock issued for exercise of Series B warrants

Repurchase of common stock from related parties in exchange for promissory note

See notes to the condensed

consolidated financial statements

Holdings, Inc.

and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024 and 2023

to Condensed Consolidated Financial Statements

31, 2025 and 2024 (Unaudited)

1 – Nature of Business

Holdings, Inc.

(f/k/a The Singing machine Company, Inc.) (the “Company”) is a holding company for an AI enabled software

logistics business operated through our SemiCab Holding subsidiary and a home karaoke consumer products company that designs and distributes

karaoke products globally to retailers and ecommerce partners through our Singing Machine subsidiary.

operations include our wholly owned subsidiaries, SMC Logistics, Inc., a California corporation (“SMCL”), SMC-Music, Inc.,

a Florida corporation (“SMCM”), SMC (HK) Limited, a Hong Kong company (“SMH”), MICS Hospitality Holdings, Inc.,

a Delaware corporation (“MICS Hospitality”), MICS Hospitality Management, LLC, a Delaware limited liability company (“MICS

Hospitality Management”), MICS Nomad, LLC, a Delaware limited liability company (“MICS NY”) and SemiCab Holdings, LLC,

a Nevada limited liability company (“SemiCab”).

Machine is primarily engaged in the development, marketing, and sale of consumer karaoke audio equipment, accessories, and musical recordings.

We are a 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.

is a cloud-based collaborative transportation platform built to achieve the scalability required to predict and optimize full-truckload

transportation at enterprise-scale.

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.

2 - RECENT DEVELOPMENTS

and Symbol Change

September 5, 2024, our Certificate of Incorporation was amended to effect a change in the name of the Company from “The Singing

Machine Company, Inc.” to “Algorhythm Holdings, Inc.” In addition, effective September 8, 2024, the Company’s

ticker symbol was changed from “MICS” to “RIME.”

in Fiscal Year

2023, our Board of Directors approved a change in our fiscal year end from March 31 to December 31.

Our results of operations, cash flows,

and all transactions impacting shareholders’ equity presented in this Quarterly Report on Form 10-Q as of September 30, 2024 are

for the three and nine month periods ended September 30, 2024 and 2023.

June 26, 2024, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with Ascendiant

Capital markets, LLC, as sales agent (the “Agent”), pursuant to which the Company could offer and sell, from time to time,

through the Agent (the “ATM Offering”), up to approximately $ 1,100,000 in shares of the Company’s common stock.

July 8, 2024, the Company entered into the First Amendment to the Sales Agreement (the “Amendment”) to increase the number

of shares to be sold in the ATM Offering to $ 2,020,000 .

On August 9, 2024, the Company entered into the Second Amendment to the

Sales Agreement (the “Amendment”) to increase the number of shares to be sold in the ATM Offering to $ 3,100,000 .

to the agreement, the Agent was paid $ 30,000 in fees to cover legal and administrative expenses and will receive an amount equal to 3%

of the gross proceeds from each sale of the Company’s share of common stock.

For the three and nine months ended September 30,

2024, the Company sold 1,673,077 shares of common stock under the ATM offering and received net proceeds of approximately $ 1,489,000

after payment of legal and accounting fees, brokerage commissions, and administrative fees to the agent of approximately $ 189,000 .

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.

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”).

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.”

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

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

All current and prior year balances have been adjusted to reflect the reverse stock split.

2 – Liquidity, Going Concern and Management Plans

Concern Analysis

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.

Holdings, Inc.

and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024 and 2023

to September 30, 2024 and through November 18, 2024 (the last trading day prior to filing), the Company sold 2,162,423 shares of common

stock under the ATM offering, and received net proceeds of approximately $ 1,372,000 after payment of brokerage commissions and administrative

fees to the agent of approximately $ 42,000 .

June 11, 2024, the Company and its wholly owned subsidiary SemiCab Holdings, LLC, a Nevada limited liability company (“SemiCab

LLC” and collectively with the Company, the “Buyer”), SemiCab, Inc., a Delaware corporation (“SemiCab”

or the “Seller”), Ajesh Kapoor and Vivek Sehgal entered into an asset purchase agreement (the “Asset Purchase Agreement”)

pursuant to which the Seller agreed to sell and assign to the Company, and the Company agreed to purchase and assume from the Seller,

substantially all the assets, and certain specified liabilities relating to the business of the Seller.

Subject to certain exceptions

set forth in the Asset Purchase Agreement, the parties agreed that the Buyer will not assume the liabilities of the Seller.

an artificial intelligence, cloud-based collaborative transportation platform built to achieve the scalability required to predict and

optimize semi-tractor trailer load efficiency.

July 3, 2024, the parties closed on the asset purchase whereby the Company issued to the Seller (i) 641,806 shares of the Company’s

common stock (ii) a twenty percent ( 20 % ) membership interest in SemiCab LLC.

to the asset acquisition agreement, the Company and Seller entered into an option agreement (the “Option Agreement”), granting

the Buyer the right to acquire all of the issued and outstanding capital securities of SMCB Solutions Private Limited (“SMCB”),

a wholly owned subsidiary of the Seller, in consideration for 320,903 shares of common stock of the Company.

The Option Agreement expired

to Condensed Consolidated Financial Statements

31, 2025 and 2024 (Unaudited)

consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going

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

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,

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.

3 – Summary of Significant Accounting Policies

of Presentation

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.

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.

Holdings, Inc.

and Subsidiaries

to Condensed Consolidated Financial Statements

31, 2025 and 2024 (Unaudited)

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.

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 .

Accounting Pronouncements

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

The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and related

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

The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

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

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.

Holdings, Inc.

and Subsidiaries

to Condensed Consolidated Financial Statements

31, 2025 and 2024 (Unaudited)

4 – Variable Interest Entities

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.

5 – Property and Equipment, Intangible Assets and Goodwill

summary of the Company’s property and equipment at March 31, 2025 and December 31, 2024 is as follows:

Schedule of Property and Equipment

Computer and office equipment

Furniture and fixtures

Molds and tooling

Property and equipment gross

Accumulated depreciation

Property and equipment

expense was $ 33,000 and $ 52,000 for the three months ended March 31, 2025 and 2024, respectively.

summary of the Company’s intangible assets at March 31, 2025 and December 31, 2024 is as follows:

Schedule of Intangible Assets

Customer Relationships

Developed Technology

Intangible assets gross

Accumulated amortization

Intangible assets net

Holdings, Inc.

and Subsidiaries

to Condensed Consolidated Financial Statements

31, 2025 and 2024 (Unaudited)

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,

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.

6 – Notes Payable to Related Parties

Holdings assumed several unsecured loans from Ajesh Kapoor and Vivek Sehgal in the acquisition of SemiCab, Inc.’s business.

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

terms of each loan are summarized in the table below:

of Notes Payable to Related Parties Loan

Balance as of March 31, 2025

current portion of notes payable to related parties

Notes payable to related parties, net of current portion

of December 31, 2024, the loans described above that were issued between April 17, 2023 and Mary 17, 2023 were in default.

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.

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 .

Holdings, Inc.

and Subsidiaries

to Condensed Consolidated Financial Statements

31, 2025 and 2024 (Unaudited)

7 – Credit Facilities and Other Financing Arrangements

Credit Facility

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.

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.

Capital Merchant Cash Advance

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.

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.

Advance Merchant Cash Advance

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.

8 – Commitments and Contingencies

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.

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.

Holdings, Inc.

and Subsidiaries

to Condensed Consolidated Financial Statements

31, 2025 and 2024 (Unaudited)

Capital Labs Settlement Agreement

May 18, 2023, SemiCab, Inc.

entered into an installment business loan agreement with Efficient Capital Labs, Inc.

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.

May 18, 2024, SemiCab, Inc.

entered into a settlement agreement with ECL pursuant to which SemiCab, Inc.

agreed to pay ECL $ 946,666 as

(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.

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.

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

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.

Holdings, Inc.

and Subsidiaries

to Condensed Consolidated Financial Statements

31, 2025 and 2024 (Unaudited)

Flatiron & OAC Adelphi Litigation

August 23, 2023, MICS NY entered into an Agreement of Lease (the “Lease Agreement”) with OAC 111 Flatiron, LLC and OAC Adelphi,

2 unchanged sentences

York, New York (the “Premises”).

the six months ended June 30, 2024, the Company abandoned its plans to continue use of the leased space and exercised its early termination

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.

2 unchanged sentences

Assets including security deposits, rent deposits and right of use assets of approximately $ 3,878,000 were written

off during the three months ended June 30, 2024.

July 26, 2024, OAC 111 Flatiron, LLC and OAC Adelphi, LLC (the “Landlord”), filed a civil action in the Supreme Court of

the State of New York against MICS Nomad LLC, a subsidiary of the Company (“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.

off during the year ended December 31, 2024.

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.

September 25, 2024, the Company entered into a Settlement Agreement for a full release and dismissal of the complaint within 5 business

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

was made on September 25, 2024 and a final payment of $ 100,000 was due and paid on October 25, 2024.

On October 29, 2024, the Landlord

filed a discontinuance with prejudice.

a result of the settlement, during the three months ended September 30, 2024, the Company wrote off the remaining operating lease liability

on the Lease Agreement and recognized a gain on early termination of the operating lease of approximately $ 3,874,000 .

For the nine months

ended September 30, 2024, the Company recognized a loss on early termination of the operating lease of $ 4,000 which includes the $ 250,000

termination settlement expense.

The net loss on early termination of the Lease Agreement was recorded as a component of operating expenses

in the accompanying condensed consolidated statements of operations.

ALGORHYTHM HOLDINGS, INC.

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.

29, 2024, the Landlord filed a discontinuance with prejudice.

Yonder Liability

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 .

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.

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,

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.

Holdings, Inc.

and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024 and 2023

October 22, 2024, the Company entered into a Securities Purchase Agreement (the “SPA”) with investors pursuant to which we

sold, in a private placement (the “Private Placement”), secured notes with an aggregate principal amount of $ 2,352,941 (the

“Notes”), for cash proceeds of $ 2,000,000 , net of original issue discount of $ 352,941 .

As consideration for entering into

the SPA, we issued a total of 2,299,998 shares of common stock of the Company to the investors on October 24, 2024 (See Note 17).

Credit Facility

March 28, 2024, the Company and Oxford Commercial Finance, a Michigan banking corporation, (referred to as “Oxford”) entered

into a Loan Agreement (the “Loan Agreement”) and related Revolving Credit Note (the “Note”) for a $ 2,000,000

revolving line of credit (the “Oxford Line of Credit”).

On October 17, 2024, the Company terminated the Loan Agreement and

As of the date of termination, the Company had no outstanding amounts owed to Oxford and paid a termination fee of $ 40,000 .

November 1, 2024, the Company entered into a Stock Repurchase Agreement (the “Repurchase Agreement”) with Regalia Ventures

LLC, a Delaware limited liability company (the “Seller”), pursuant to which the Company agreed to repurchase from the Seller

an aggregate of 1,098,901 issued and outstanding shares of common stock, par value $ 0.01 per share, of the Company (the “Shares”).

Pursuant to the terms of the Repurchase Agreement, the Company has agreed to repurchase from the Seller, and the Seller has agreed to

sell, assign and transfer to the Company, all of the Seller’s right, title and interest in and to the Shares, at a price per Share

equal to the higher of:

(1) the closing price of the common stock on the last trading day immediately preceding the date of the Repurchase

or (2) the highest volume weighted average price (VWAP) of the common stock during a pricing period of ten (10) consecutive

trading days prior to the date of the Repurchase Agreement per share (the “Purchase Price”), and the Company shall issue

to the Seller a promissory note in the principal amount equal to the Purchase Price, substantially in the form attached to the Repurchase

Agreement as Exhibit A (the “Note”), and subject to terms and conditions therein.

shares of common stock to be repurchased were originally issued to the Seller on November 21, 2023, pursuant to a certain stock purchase

agreement, dated November 20, 2023.

of the date of this filing, the repurchase of the shares has not yet closed.

3 – LIQUIDITY, GOING CONCERN AND MANAGEMENT PLANS

previously reported on Form 8-K filed on August 30, 2024, on August 26, 2024, the Company received a notice from The Nasdaq Stock Market

LLC (“NASDAQ”) indicating that its stockholders’ equity as reported in its Quarterly Report on Form 10-Q for the quarterly

period ended June 30, 2024 did not meet the minimum of $2,500,000 in stockholders’ equity required by NASDAQ Listing Rule 5550(b)(1)

(the “Equity Rule”) for continued listing, or the alternatives of market value of listed securities or net income from continuing

Pursuant to the Equity Rule, the Company submitted a plan to regain compliance with the Equity Rule.

November 13, 2024, the Company filed a Form 8-K stating that it believed it regained compliance with the Equity Rule.

As disclosed herein,

the Company reported stockholders’ equity of approximately $ 2.7 million.

has advised the Company that it will continue to monitor the Company’s ongoing compliance with the stockholders’ equity requirement

and, if at the time of its next periodic report the Company does not evidence compliance, that it may be subject to delisting.

of September 30, 2024, the Company had cash on hand of approximately $ 621,000 and deficit working capital of approximately $ 2,082,000

which is not sufficient to fund the Company’s planned operations through one year after the date the consolidated financial statements

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.

condensed 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 condensed consolidated financial statements have been prepared on a basis that assumes the Company

will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in

the ordinary course of business.

intends to finance operations with future debt or equity financings, however, if and when such financings may occur are uncertain.

making this assessment management performed a comprehensive analysis of the Company’s current circumstances including:

its financial

position, cash flow and cash usage forecasts, and obligations and debts.

Although management has a recent history of successful capital

raises, the analysis used to determine the Company’s ability as a going concern does not include cash sources outside the Company’s

direct control that management expects to be available within the next 12 months.

ALGORHYTHM HOLDINGS, INC.

to Condensed Consolidated Financial Statements

31, 2025 and 2024 (Unaudited)

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

9 – Stock Compensation Expense

Incentive Plan

April 12, 2022, the Company’s board of directors approved The Singing Machine Company, Inc.

2022 Equity Incentive Plan.

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.

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.

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.

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.

10 – Net Loss Per Share

computations of basic and dilutive loss per share of commons stock outstanding for the three months ended March 31, 2025 and 2024 are

of Basic and Diluted Loss Per Share

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

Basic and diluted loss per common share

Holdings, Inc.

and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024 and 2023

4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

of Presentation

accompanying unaudited financial statements for the three months ended September 30, 2024 and 2023 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 Securities and Exchange Commission.

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, such 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 September 30, 2024 and condensed financial statements information for the three and nine months ended September 30, 2024 and

2023 are unaudited whereas the condensed consolidated balance sheet as of December 31, 2023 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-KT for the transition period ended December

There have been no changes to our significant accounting policies as disclosed on the Company’s annual report on Form

10-KT for the transition period ended December 31, 2023.

of Consolidation

Company evaluates its business relationships with related parties to identify potential Variable Interest Entities (“VIEs”)

under Accounting Standards Codification (“ASC”) 810, Consolidation.

The Company will consolidate any VIE in which it has

a controlling financial interest and is deemed to be the primary beneficiary.

A controlling financial interest has both of the following

characteristics:

(1) the power to direct the activities of the VIE that most significantly impact its economic performance;

obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE

that could be significant to the VIE.

If both characteristics are met, the Company is considered to be the primary beneficiary and therefore

will consolidate that VIE into its consolidated financial statements.

prescribed by ASC 810, if the Company holds a variable interest in a VIE but is not the entity’s primary beneficiary, it shall

disclose its methodology for determining if the Company is the primary beneficiary of the VIE, e.g., significant judgments and

assumptions made.

Additional information required includes information about the types of involvement considered significant, and

those considered in the determination of whether the reporting entity is the primary beneficiary.

if the Company provides or intends to provide financial or other support (explicitly or implicitly) to the VIE, when not contractually

required to, the Company shall disclose the type and amount of the support, along with the primary reasons for providing the support.

Both qualitative and quantitative information about the Company’s involvement with the VIE, shall include the nature, purpose,

size, and activities of the VIE, including how the VIE is financed.

Company allocates the purchase price of an acquired business to the tangible and intangible assets acquired and liabilities assumed based

upon their estimated fair values on the acquisition date.

Any excess of the purchase price over the fair value of the net assets acquired

is recorded as goodwill.

The purchase price allocation process requires management to make significant estimates and assumptions at the

acquisition date with respect to intangible assets.

The allocation of the consideration transferred in certain cases may be subject to

revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition

Direct transaction costs associated with the business combination are expensed as incurred.

The Company includes the results of

operations of the business that it has acquired in its consolidated results prospectively from the date of acquisition.

Company evaluates its goodwill for impairment in accordance with the Financial Accounting Standards Board (“FASB”) issued

Accounting Standards Update (“ASU”) 350, Intangibles – Goodwill and Other .

Goodwill is recorded when the purchase

price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired.

Company tests the recorded amount of goodwill for impairment on an annual basis on December 31 or more frequently if there are indicators

that the carrying amount of the goodwill exceeds its carried value.

Company acquired amortizable intangibles assets as part of asset purchase agreements consisting of customer relationships, trade names

and proprietary technology.

Such intangibles are amortized over their useful lives on a straight-line

Company reviews intangible assets for impairment whenever events or changes in business circumstances indicate that the carrying amount

of the assets might not be recoverable.

Factors that the Company considers in deciding when to perform an impairment review include significant

underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes

or planned changes in the use of the assets.

If an impairment review is performed to evaluate a long-lived asset for recoverability,

the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived

asset to its carrying value.

An impairment loss would be recognized when estimated undiscounted future cash flows expected to result

from the use of an asset are less than its carrying amount.

The impairment loss would be based on the excess of the carrying value of

the impaired asset over its fair value, determined based on discounted cash flows.

ALGORHYTHM HOLDINGS, INC.

to Condensed Consolidated Financial Statements

31, 2025 and 2024 (Unaudited)

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:

Diluted Weighted Average Number of Shares

Three Months Ended

March 31, 2025

March 31, 2024

Basic weighted average common shares outstanding

Effect of dilutive stock options

Diluted weighted average of common shares outstanding

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.

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.

11 – Securities Transactions

Ventures Stock Repurchase Transaction

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.

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.

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

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.

Holdings, Inc.

and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024 and 2023

Value Measurements

accordance with ASC 820, Fair Value Measurements and Disclosures, fair value is defined as the exit price, or the amount that would be

received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement

guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes

the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs include those that

market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent

of the Company.

Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants

would use in valuing the asset or liability.

The guidance establishes three levels of inputs that may be used to measure fair value:

Quoted market prices in active markets for identical assets or liabilities.

Inputs other than Level 1 that are observable, either directly or indirectly, such as

quoted prices for similar assets or liabilities;

quoted prices in markets that are not active;

or model-derived valuations.

All significant inputs used in the Company’s valuations

are observable or can be derived principally from or corroborated with observable market

data for substantially the full term of the assets or liabilities.

Level 2 inputs also include

quoted prices that were adjusted for security-specific restrictions which are compared to

output from internally developed models such as a discounted cash flow model.

Unobservable inputs that are supported by little or no market activity and that are significant

to the fair value of the assets or liabilities.

carrying amounts of financial instruments carried at cost, including cash, accounts receivables and accounts and accounts receivable

– related party, trade payables advances and notes payables and notes payable – related party approximate their fair value

due to the short-term maturities of such instruments.

categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to

the fair value measurement.

ACCOUNTING PRONOUNCEMENTS

November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , that

requires disclosure of significant segment expenses that are regularly reviewed by the chief operating decision maker and included within

each reported measure of segment profit or loss.

The standard also requires disclosure of the composition of other segment items included

in the measure of segment profit or loss that are not separately disclosed.

All disclosure requirements under ASU 2023-07 are also required

for public entities with a single reportable segment.

The ASU is effective for the Company’s Annual Report on Form 10-K for the

year ended December 31, 2024, and subsequent interim periods, with early adoption permitted.

The Company is currently evaluating the

impact of adopting this standard on our consolidated financial statements and related disclosures.

ALGORHYTHM HOLDINGS, INC.

to Condensed Consolidated Financial Statements

31, 2025 and 2024 (Unaudited)

Group Stock Repurchase Transaction

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;

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.

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

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.

2024 Public Offering

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.

received aggregate gross proceeds upon the closing of the offering of approximately $ 9,000,000 , before deducting placement agents’

fees and other offering expenses.

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.

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 .

Holdings, Inc.

and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024 and 2023

December 2023, the FASB issued 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 or loss from continuing operations before income

tax expense or 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

our consolidated financial statements and related disclosures.

5 – ASSET ACQUISITION

June 11, 2024, the Company and its wholly owned subsidiary SemiCab,LLC, SemiCab, Inc., Ajesh Kapoor and Vivek Sehgal entered into the

Asset Purchase Agreement pursuant to which the Seller agreed to sell and assign to the Company, and the Company agreed to purchase and

assume from the Seller, substantially all the assets, and certain specified liabilities relating to the business of the Seller.

The Company decided to acquire SemiCab as part of a strategic plan

to diversify its business and reduce its reliance solely on retail and consumer electronics and strategically focus on growth.

The acquisition

fit the Company’s strategic decision to pivot to a holding company structure.

July 3, 2024, the parties completed the Asset Purchase Agreement whereby the Company issued to the Seller (i) 641,806 shares of the Company’s

common stock with a value of approximately $ 494,000 (ii) a twenty percent ( 20 % ) membership interest in SemiCab LLC.

(See Note 2).

to the asset acquisition agreement, the Company and Seller entered into an option agreement (the “Option Agreement”), granting

the Buyer the right to acquire all of the issued and outstanding capital securities of SMCB Solutions Private Limited (“SMCB”),

a wholly owned subsidiary of the Seller, in consideration for 320,903 shares of common stock of the Company.

As of the date of this filing,

the Option Agreement expired unexercised.

connection with the asset acquisition agreement, effective July 3, 2024, SemiCab, LLC entered into employment agreements (the “Agreements”)

with Ajesh Kapoor and Vivek Sehgal Kapoor’s agreement spans three years with an annual base salary of $ 140,000 for 2024, $ 240,000

for 2025, and $ 300,000 for subsequent years, and Sehgal’s agreement also spans three years with an annual base salary of $ 105,000

for 2024, $ 210,000 for 2025, $ 240,000 for 2026, $ 270,000 for 2027, and $ 300,000 for 2028.

Both executives’ salaries are subject

to annual review by the Board.

They are eligible for annual performance-based bonuses contingent on specific goals set by the Board and

will participate in the 2022 Equity Incentive Plan, receiving annual equity issuances and cash-based incentives tied to revenue milestones.

Both are entitled to standard employee benefits, including health insurance and retirement plans.

ALGORHYTHM HOLDINGS, INC.

to Condensed Consolidated Financial Statements

31, 2025 and 2024 (Unaudited)

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 .

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.

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.

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.

12 – Derivative Liability

the three months ended March 31, 2025, the Company had derivative warrant liabilities that were measured at fair value on a recurring

These fair value measurements were estimated using a Monte Carlo simulation model, with the key inputs described below.

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.

key inputs for the Series A warrant liabilities were as follows:

of Derivative Warrant Liabilities

Warrant Liability – Series

Stock price on valuation date

Exercise price

Number of warrants

Remaining term (years)

Annual equity volatility

Annual volume volatility

Risk-free interest rate

Expected stockholder approval date

Expected stockholder approval probability

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.

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.

Holdings, Inc.

and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024 and 2023

July 3, 2024, the (“Acquisition Date”), the Company acquired substantially all the assets and assumed certain liabilities

of SemiCab, Inc.

in exchange for the purchase price consideration of approximately $ 983,000 .

On July 3, 2024, the value of the total

identifiable intangible assets, including goodwill was approximately $ 4,754,000 , based on the restricted value of SMC common shares on

the date of acquisition.

The Company also recognized non-controlling interest at fair value as of the Acquisition Date in the amount

of approximately $ 74,000 representing 20 % ownership in SemiCab Holdings, LLC, which is 80 % owned by the Company.

trade names and developed technology intangible assets were valued using the relief-from-royalty method.

The relief-from-royalty method

is one of the methods under the income approach wherein estimates of a company’s earnings attributable to the intangible asset

are based on the royalty rate the company would have paid for the use of the asset if it did not own it.

Royalty payments are estimated

by applying royalty rates of 0.5 % to the prospective revenue attributable to the intangible asset.

The resulting net annual royalty payments

are then discounted to present value using a discount factor of 33 %, and the remaining economic life of nine years .

Company determined an estimated fair value of customer relationships using multi-period excess earnings approach utilizing a discounted

cash flow methodology.

The analysis included assumptions regarding the growth rate for the development of new businesses, concluding

between 8 % and 20 % organic growth rates for revenue attributable to existing customers.

A discount rate of 33 % was used for the weighted

average cost of capital analysis, along with the evaluation of the capital expenditure requirements associated with any new initiatives

developed by SemiCab.

The purchase accounting for this transaction is provisional and subject

to measurement period adjustments for one year following the date of acquisition.

valuations for the above intangible assets require use of unobservable inputs that are classified as Level 3 on the fair value hierarchy.

goodwill resulting from this acquisition is tax deductible.

following table presents the allocation of the consideration transferred to the assets acquired and liabilities assumed based on their

OF CONSIDERATION TRANSFERRED TO THE ASSETS ACQUIRED AND LIABILITIES ASSUMED

Equity consideration

Fair value of non-controlling interest

Total Equity Consideration

Debt Extinguishment

Total Consideration

Identifiable net assets acquired:

Cash and Cash Equivalents

Accounts receivable

Prepaid expenses and other current assets

Property and equipment, net

Other Non-Current Operating Assets, Net

Customer Relationships ( 9 year estimated useful life)

Trade Name ( 9 year estimated useful life)

Developed Technology ( 6 year estimated useful life)

Accounts payable and accrued expenses

to Condensed Consolidated Financial Statements

31, 2025 and 2024 (Unaudited)

following table provides a roll-forward of the fair value of the derivative liabilities described above during the three months ended

March 31, 2025:

of fair value of the Derivative Liabilities

Warrant Liabilities

Balance at December 31, 2024

( 15,214,000 )

Loans payable Merchant Cash Advances (MCA)

Notes payable Related Parties

Net assets acquired

( 15,214,000 )

Estimated Goodwill

Forma Information

unaudited pro forma financial information below presents the effects of the Asset Purchase Agreement as though it had been completed

on January 1, 2023.

The pro forma adjustments are derived from the historically reported transactions of the respective companies.

pro forma results do not include anticipated combined effects or other expected benefits of the acquisition.

The pro forma results for

the nine months ended September 30, 2024 and 2023 reflect the combined performance of the Company and the SemiCab business for that period.

The unaudited pro forma information is based on available data and certain assumptions that the Company believes are reasonable given

the circumstances.

However, actual results may differ materially from the assumptions used in the accompanying unaudited pro forma financial

This selected unaudited pro forma condensed combined financial information is presented for illustrative purposes only and

is not intended to represent what the actual consolidated results of operations would have been had the acquisition date occurred on

January 1, 2023, nor does it attempt to forecast future consolidated results of operations.

ALGORHYTHM HOLDINGS, INC.

and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024 and 2023

OF PRO FORMA FINANCIAL INFORMATION

Nine Months Ended

September 30, 2024

September 30, 2023

Operating loss from continuing operations

Loss on change in fair value

Reclassification to equity

( 7,857,000 )

Balance at March 31, 2025

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:

of Shares of Common Stock Underlying Warrants

Balance at December 31, 2024

Balance at March 31, 2025

Company did not issue any warrants during the three months ended March 31, 2024 and did not have any warrants outstanding as of March

13 – Income Taxes

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.

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.

Holdings, Inc.

and Subsidiaries

to Condensed Consolidated Financial Statements

31, 2025 and 2024 (Unaudited)

14 – Segment Information and Revenue Disaggregation

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.

following table details the revenues, significant expenses and other segment items regularly provided to the CODM:

of Details the Revenue, Significant expenses and Other Segment

Three Months Ended March 31, 2025

Three Months Ended March 31, 2024

Singing Machine

Adjusted cost of revenues

Adjusted sales and marketing

Adjusted general and administrative (1)

Adjusted depreciation and amortization

Share based compensation

Change in fair value of warrant liability

Gain on disposal of fixed assets

Loss on issuance of warrants

Interest expense

Other income (expense), net

Income tax provision

Segment net loss

$ ( 8,777,000 )

$ ( 517,000 )

The pro forma results for

the nine months ended September 30, 2023, include a net increase in operating expenses of $ 265,000 , consisting of legal and accounting

expenses of approximately $ 215,000 associated with the acquisition of SemiCab and $ 50,000 in shares of SMC common stock issued

to Vivek Sehgal as sign-on bonus.

6 – FINANCING

Credit Facility

March 28, 2024, the Company entered into a Loan and Security Agreement (the “Credit Agreement”) with Oxford Business Credit

“Oxford”), as Lender.

The Credit Agreement established a secured asset-backed revolving credit facility which is comprised

of a maximum $ 2,000,000 revolving credit facility (“Credit Facility”) (“Revolving Loan Cap”).

Availability under

the Credit Facility is 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 are secured by a continuing security interest in all property of each Loan

Party, subject to certain excluded collateral (as defined in the Credit Agreement).

As of September 30, 2024, there was approximately

$ 22,000 due from Oxford for cash collections received that exceeded the amount due on the Credit Agreement.

As of September 30, 2024,

there were no funds available for borrowing under the Credit Facility.

under the Credit Facility take the form of base rate loans at interest rates of the Wall Street Journal Prime Rate plus 2.5 %, but in

any event no less than 10 %.

The Credit Agreement includes certain covenants which include, but are not limited to restrictions on debt,

asset liens, capital expenditures, formation of new entities and financial covenants.

For the three and nine months ended September 30,

2024, the Company incurred interest expense of approximately $ 24,000 and $ 66,000 , respectively associated with financing costs from the

Credit Agreement.

Credit Agreement is for a two -year term that expires on November 28, 2026 , and automatically renews for an additional one-year term on

each anniversary of date of the agreement unless the Company notifies Oxford within 60 days before the anniversary date of its intention

to pay off the Credit Facility and terminate the Credit Agreement.

Company is subject to a two percent ( 2 %) exit fee (“Exit Fee”) of the Revolving Loan Cap if the Company terminates the Credit

Agreement and repays the obligations under Credit Facility prior to the anniversary date of the Credit Agreement.

The Exit Fee shall

automatically renew on the two-year anniversary date of the Loan Agreement for an additional one-year period unless the Company notifies

Lender in writing within sixty (60) days before such anniversary date of Borrower’s intention to pay off this Credit Facility and

terminate the Credit Agreement and all obligations of the Credit Facility are paid in full by such anniversary date.

no draws against the Credit Facility since inception of the Credit Agreement.

October 17, 2024, the Company voluntarily terminated the Credit Agreement.

Pursuant to the terms of the Credit Agreement the Company

was obligated to pay a $ 40,000 Exit Fee due to termination prior to the anniversary date of the Credit Agreement.

Third Bank Asset-backed Revolving Credit Facility

October 14, 2022, the Company entered into a Loan and Security Agreement with Fifth Third Financial Corporation (the “Credit Agreement”),

as Lender, replacing the Company’s credit facilities with Crestmark and IHC that were terminated by the Company on October 13,

The Credit Agreement established a secured asset-backed revolving credit facility which is comprised of a maximum $ 15,000,000 revolving

credit facility (“Credit Facility”).

The Credit Facility was terminated on November 17, 2023 .

Availability under the Credit

Facility was determined monthly by a borrowing base comprised of a percentage of eligible accounts receivable and eligible inventory

of the Borrowers.

The Company’s obligations under the Credit Agreement are secured by a continuing security interest in all property

of each Loan Party, subject to certain excluded collateral (as defined in the Credit Facility).

associated with closing of the Credit Agreement of approximately $ 254,000 were deferred and being amortized over life of the loan.

the three months and nine months ended September 30, 2023 the Company incurred approximately $ 21,000 and $ 63,000 , respectively associated

with the amortization of deferred financing costs from the Credit Agreement.

ALGORHYTHM HOLDINGS, INC.

and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024 and 2023

under the Credit Facility took the form of base rate loans at interest rates of the greater of either (a) the Prime Rate plus 0.50% or

(b) the Secured Overnight Financing Rate (“SOFR”) 30-day term rate plus 3%, subject to a minimum of 0.050% in either case.

the three and nine months ended September 30, 2023, the Company incurred interest expense of approximately $ 19,000 and $ 59,000 respectively,

associated with interest and financing costs from the Credit Agreement.

May 19, 2023, the Company executed a Waiver and First Amendment agreement which provides for a waiver of previous defaults and instituted

new covenants.

August 30, 2023, the Company entered into a Waiver and Second Amendment (the “Revolving Loan Amendment”) to the Credit Agreement.

The Revolving Loan Amendment provides for, among other things, (i) a waiver of all known existing defaults under the Credit Agreement

as of the date of the Revolving Loan Amendment and (ii) the amendment of the definition of “Borrowing Base” to reduce from

$ 5,000,000 to $ 2,000,000 .

November 17, 2023, the Company voluntarily terminated the Credit Agreement as the Company could not comply with the debt coverage financial

covenant effective September 30, 2023.

There was no balance outstanding on the credit agreement as of the termination date.

Cash Advance payable – Agile Capital Funding, LLC

Pursuant to the acquisition of SemiCab, the Company assumed a Merchant

Cash Advance (“MCA Financing”) payable with Agile Capital Funding, LLC (“Agile”).

March 22, 2024, SemiCab entered into a MCA Financing agreement with Agile.

amount borrowed was $ 315,000 , with net proceeds to the Company in the amount of $ 300,000 .

Repayment terms stipulate weekly payments in

the amount of $ 16,200 for weeks, for a total of $ 453,600 repaid.

The effective interest rate for the borrowings is 15 %.

30, 2024 the amount due on this MCA Financing was approximately $ 146,500 .

Cash Advance payable – Cedar Advance, LLC

Pursuant to the acquisition of SemiCab, the Company assumed a MCA Financing

payable with Cedar Advance, LLC (“Cedar”).

May 8, 2024, SemiCab entered into an MCA Financing with Cedar.

The initial amount borrowed was $ 215,000 , with net proceeds

to the Company in the amount of $ 204,250 .

Repayment terms stipulate weekly payments in the amount of $ 11,133 for 28 weeks, for a total

of $ 311,750 repaid.

The effective interest rate for the borrowings is 18 %.

As September 30, 2024 the amount due on this MCA Financing

was approximately $ 156,920 .

Payable SemiCab Investor

maintains a loan from a SemiCab investor in the amount of $ 50,000 .

The loan bears interest at 10 % per annum and matured on May 15, 2024

and is unsecured.

As of September 30, 2024 the loan had not been paid and is in default.

The principal amount due is recorded as a component

of notes payable on the accompanying condensed consolidated balance sheets.

7 – LOANS PAYABLE – RELATED PARTIES

maintains several outstanding affiliate loans from Ajesh Kapoor and Vivek Sehgal, (current employees and original founders of SemiCab)

initially issued by SemiCab Holdings LLC.

The notes are unsecured.

There was accrued interest payable is approximately $ 72,000 that is

included as a component of accrued expenses on the accompanying condensed consolidated balance sheets.

Interest expense on these related

party loans for the three and nine months ended September 30, 2024 was approximately $ 28,000 .

ALGORHYTHM HOLDINGS, INC.

and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024 and 2023

specific terms of each loan are summarized in the table below:

Amount due as of September 30, 2024

Current portion of notes payable to related parties

Notes payable to related parties, net of current portion

8 - COMMITMENTS AND CONTINGENCIES

Agreement – Efficient Capital Labs, Inc .

May 18, 2023 SemiCab entered into a Installment Business Loan Agreement (“IBLA”) with a principal balance of $ 1,000,000 with

Efficient Capital Labs, Inc.

(“ECL”) to finance working capital and product development.

The loan had a 12 -month maturity

Repayments were originally scheduled to begin in June 2023, in equal installments of $ 91,667 for 13 months, with an interest rate

On May 18, 2024, SemiCab entered into a settlement agreement (“Settlement”) with ECL.

The terms of repayment are

Semicab shall pay to ECL the sum of $ 946,666 USD (the “Settlement Sum”) as follows:

On or before May 20, 2024, Semicab shall pay ECL $ 25,000.00 USD (the “Initial Payment”);

On or before June 3, 2024, Semicab shall pay ECL $ 75,000.00 USD (the “Second Payment”);

On or before the first business day of each of the following ten (10) calendar months, starting July 1, 2024 Semicab shall pay ECL $ 84,666

USD (the “Additional Payments,” and each an “Additional Payment”).

of September 30, 2024 the amount payable on the Settlement is $ 578,917 and recorded as a component accrued expenses on the accompanying

condensed consolidated balance sheets.

to the asset purchase agreement with SemiCab, the Company assumed a judgement against SemiCab regarding damages resulting from contract

breach for IT subscription-based services.

On March 28, 2020, SemiCab entered into a service contract and agreement with Blue Yonder,

(“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 (“Lawsuit”).

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.

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 condensed consolidated balance sheets.

ALGORHYTHM HOLDINGS, INC.

and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024 and 2023

December 21, 2023, Ault Lending, LLC, a wholly owned subsidiary of Ault Alliance, Inc.

(“Ault”), one of the Company’s

largest shareholders, filed a derivative shareholder action in Delaware Chancery Court against the Company, its Directors, and other

Company shareholders (The Stingray Group, Inc.

and Regalia Ventures) (“the Defendants”) for alleged breach of fiduciary duty

in approving a recent above-market private placement equity transaction.

The complaint alleges the Company, and its directors followed

an inadequate process in evaluating the private placement transaction which occurred back in November 2023 and entered into the transaction

with an intent to dilute Ault’s ownership stake in the Company.

The Company filed a motion to dismiss the complaint.

Company’s assessment of the facts underlying the claims, the uncertainty of the litigation and the preliminary stage of the case,

the Company cannot reasonably estimate the potential loss or range of loss that may result from this action.

Company is involved in litigation arising from other matters in the ordinary course of business.

The Company is subject to claims, suits

and other proceedings that could result in fines, civil penalties, or other adverse consequences.

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

a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the reasonably possible loss.

Company evaluates developments in its legal matters that could affect the amount of liability that has been previously accrued, and the

matters and related reasonably possible losses disclosed, 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.

9 – OPERATING LEASES

the time of this filing, the Company has operating lease agreements for offices in Florida and Hong Kong.

Company entered into an operating lease agreement, effective October 1, 2017, for our corporate headquarters located in Fort Lauderdale,

Florida where we lease approximately 6,500 square feet of office space which expired on March 31, 2024 .

On February 22, 2024, the Company

executed a lease extension for 14 months effective April 1, 2024, and expires on May 31, 2025.

The base rent on the extension is approximately

$10,000 per month subject to a 3% annual adjustment.

Company entered into an operating lease on August 23, 2023, for approximately 10,000 square feet of ground floor retail space and a portion

of the basement underneath the ground floor retail space.

During the nine months ended September 30, 2024, the Company abandoned its

plans to continue use of the leased space.

On September 25, 2024, the Company entered into a Settlement Agreement for a full release

and termination of the Lease Agreement in exchange for Company’s payment of $ 250,000 .

(See Note 2).

balance sheet information related to leases as of September 30, 2024 and December 31, 2023 is as follows:

SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES

September 30, 2024

December 31, 2023

Operating lease - right-of-use assets

Current portion of operating leases

Operating lease liabilities, net of current portion

Supplemental statement of operations information related to operating leases is as follows:

SCHEDULE OF LEASE TERM AND DISCOUNT RATE

Three Months Ended September 30, 2024

Three Months Ended September 30, 2023

Nine Months Ended September 30, 2024

Nine Months Ended September 30, 2023

Operating lease expense as a component of general and administrative expenses

Supplemental cash flow information related to operating leases is as follows:

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flow paid for operating leases

Lease term and Discount Rate

Weighted average remaining lease term (years)

Weighted average discount rate

ALGORHYTHM HOLDINGS, INC.

and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024 and 2023

future payments under all operating leases as of September 30, 2024, are as follows:

OF OPERATING LEASE MINIMUM FUTURE PAYMENTS

Payments due by period

2024 (remaining six months)

Total minimum future payments

Total operating lease liabilities

10 – ISSUANCE OF COMMON STOCK

Incentive Plan

April 12, 2022, the Board of Directors approved The Singing Machine Company, Inc.

2022 Equity Incentive Plan, or the 2022 Plan.

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 collectively, the “Awards.” Awards may be granted

under the 2022 Plan to the Company’s employees, officers, directors, consultants, agents, advisors and independent contractors.

share base compensation awards issued under the 2022 Plan during the three and nine months ended September 30, 2024 with a weighted average grant date fair value of $ 0.55 per share.

There were no

share base compensation awards issued under the 2022 Plan during the three and nine months ended September 30, 2023.

There were 1,250

shares forfeited during the three and nine months ended September 30, 2024, respectively.

There were no

shares forfeited during the three and nine months ended September 30, 2023.

As of September 30, 2024, there were 63,453

shares available to be issued under the 2022 Plan.

Equity compensation under the 2022 Plan was approximately $ 101,000 and

$ 138,000 during the three and nine months ended September 30, 2024 and was expensed as a component of general administrative expenses

on the accompanying condensed consolidated statements of operations.

of September 30, 2024, there was an unrecognized expense of approximately $ 50,000 remaining on options currently vesting over time with

an approximate weighted average of twelve months remaining until these options are fully vested.

vested options as of September 30, 2024, had no intrinsic value.

Equity Compensation

the three and nine months ended September 30, 2024, the Company issued 774,528

shares of common stock to three vendors for payment

of consulting services rendered and 94,340

for restricted shares of common stock to Vivek

Sehgal (a related party) as bonus compensation (See Note 5).

The grant date fair value for all of these share issuances was approximately

and were expensed as a component of general and administrative expenses on the accompanying condensed consolidated statements of operations

during the three and nine months ended September 30, 2024.

These shares vest immediately but must be held for a minimum of six months

in accordance with Securities Exchange Commission Rule 144.

11 - WARRANTS

warrants issued and outstanding as of September 30, 2024 and December 31, 2023, were 902,113 .

There were no changes in the warrants outstanding

during the period.

of September 30, 2024, the Company’s warrants by expiration date were as follows:

OF WARRANTS EXPIRATION

Common Warrants

Exercise Price

Expiration Date

September 15, 2026

ALGORHYTHM HOLDINGS, INC.

and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024 and 2023

12 - COMPUTATION OF LOSS PER SHARE

of basic and dilutive loss per share for the three and nine months ended September 30, 2024 and 2023 are as follows:

OF BASIC AND DILUTIVE LOSS PER SHARE

For the three months ended September 30, 2024

For the three months ended September 30, 2023

For the nine months ended September 30, 2024

For the nine months ended September 30, 2023

Net income (loss) available to common stockholders

$ ( 9,294,000 )

$ ( 2,367,000 )

Weighted-average common shares outstanding

Basic and diluted income (loss) per share

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 were issued upon the exercise of outstanding in-the-money options

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.

the three and nine months ended September 30, 2024 and 2023, options to purchase 98,178 and 91,261 shares of common stock, respectively

and options to purchase 902,113 common stock warrants for both September 30, 2024 and 2023 were excluded in the calculation of diluted

net loss per share as the result would have been anti-dilutive.

13 - INCOME TAXES

the three months ended September 30, 2024 and 2023 the Company did no t recognize income tax provision as the Company is not forecasting

any taxable income for the current year and had a loss before income tax benefit in the previous year.

The Company’s income tax

provision for the nine months ended September 30, 2023, was approximately $ 1,502,000 as the Company recognized a valuation reserve of

all of its deferred tax assets based on the recent history of losses and forecasts that suggested the Company would not be able to utilize

the deferred tax assets in the future.

Company’s income tax expense differs from the expected tax benefit/expense based on statutory rates primarily due to full valuation

allowance for all of its subsidiaries for the three and nine months ended September 30, 2024 and 2023.

14 – REVENUE DISAGGREGATION

$ ( 2,367,000 )

Total segment assets

(1) Excludes depreciation

and amortization, share-based compensation, impairment of goodwill and impairment of a note receivable

following reconciles total segment assets to consolidated total assets as of March 31, 2025:

Schedule of Reconcilation of Segment Assets to Consolidated

Total segment assets

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.

Holdings, Inc.

and Subsidiaries

to Condensed Consolidated Financial Statements

31, 2025 and 2024 (Unaudited)

Disaggregation

Company disaggregates revenues by product line and major geographic region as most of its revenue is generated by the sales of karaoke

hardware and the Company has no other material business segments:

Revenue by product line is as follows:

by product line is as follows:

of Revenue by Product Line

Three Months Ended

Nine Months Ended

September 30, 2024

September 30, 2023

September 30, 2024

September 30, 2023

Classic Karaoke Machines

Licensed Products

karaoke machines

Kids youth electronics

Microphones and Accessories

and accessories

Music subscriptions

Logistics Services

Total Net Sales

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.

15 – Concentrations, Risks and Uncertainties

Liquidity and Financial Stability

times, the Company maintains cash in United States bank accounts that are more than the Federal Deposit Insurance Corporation insured

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.

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.

Holdings, Inc.

1 unchanged sentence

to Condensed Consolidated Financial Statements

30, 2024 and 2023

by geographic region for the periods presented are as follows:

OF SALES BY GEOGRAPHICAL REGION

North America

Company selectively participates in a retailer’s co-op promotion incentives by providing marketing fund allowances to its customers.

As these co-op promotion initiatives are not a distinct good or service and the Company cannot reasonably estimate the fair value of

the benefit it receives from these arrangements, the cost of these allowances at the time they are offered to the customers are recorded

as a reduction to net sales.

For the three months ended September 30, 2024 and 2023, co-op promotion incentives were approximately $ 908,000

and $ 1,637,000 , respectively.

For the nine months ended September 30, 2024 and 2023, co-op promotion incentives were approximately $ 1,257,000

and $ 1,901,000 , respectively.

The Company’s estimated reserve for co-op promotion incentives was approximately $ 1,833,000 and $ 1,277,000

as of September 30, 2024 and December 31, 2023, respectively.

The estimated reserve for co-op promotions is a component of accrued expenses

on the accompanying condensed consolidated balance sheets.

Company estimates variable consideration under its return allowance programs for goods returned from the customer whereby a revenue return

reserve is recorded based on historic return amounts, specific events as identified and management estimates.

The Company’s reserve

for sales returns as of September 30, 2024 and December 31, 2023, was approximately $ 2,212,000 and $ 3,390,000 , respectively.

In conjunction

with the recording of the revenue sales return reserve, the Company estimates the cost of products that are expected to be returned under

its return allowance program whereby the estimated cost of product returns is recorded as an asset.

The asset is separately stated as

returns asset on the condensed consolidated balance sheets.

The Company’s estimated cost of returns as of September 30, 2024 and

December 31, 2023, was approximately $ 1,081,000 and $ 1,919,000 , respectively.

return program for defective goods is negotiated with each of the Company’s wholesale customers on a year-to-year basis.

are allowed to return defective goods within a specified period of time after shipment (between six and nine months).

The Company does

make occasional exceptions to this return policy and accordingly records a sales return reserve based on historic return amounts, specific

exceptions as identified and management estimates.

Company records a sales reserve for its return goods programs at the time of sale for estimated sales returns that may occur.

The liability

for defective goods is included in the reserve for sales returns on the condensed consolidated balance sheets.

15 - CONCENTRATIONS OF CREDIT RISK AND REVENUE

Company derives a majority of its revenues from retailers of products in the United States.

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.

At September 30, 2024, 70 %

of accounts receivable were due from three customers in North America that individually owed over 10% of total accounts receivable.

December 31, 2023, 82 %

of accounts receivable were due from four customers in North America that individually owed over 10% of total accounts receivable.

from customers representing greater than 10% of total net sales derived from our top three customers as a percentage of net sales were

41 %, 20 %, and 13 % for the three months ended September 30, 2024.

Revenues from customers representing greater than 10% of total net sales

derived from three customers as a percentage of net sales were 28 %, 22 % and 21 % for the three months ended September 30, 2023.

from customers representing greater than 10% of total net sales derived from our top four customers as a percentage of net sales were

29 %, 27 %, 15 % and 10 % for the nine months ended September 30, 2024.

Revenues from customers representing greater than 10% of total net

sales derived from our top three customers as a percentage of net sales were 44 %, 13 % and 12 % for the nine months ended September 30,

31, 2025 and 2024 (Unaudited)

Trade Policies

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

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.

Concentration

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.

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.

16 – Related Party Transactions

Group Subscription Payments

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.

Holdings, Inc.

1 unchanged sentence

to Condensed Consolidated Financial Statements

30, 2024 and 2023

16 – RELATED PARTY TRANSACTIONS

To/From Related Parties

(“Stingray”) is an existing shareholder with board representation.

The Company has a music subscription sharing

agreement with Stingray.

For the three months ended September 30, 2024, and 2023, the amounts earned from the subscription agreement

were approximately $ 218,000 and $ 156,000 , respectively.

For the nine months ended September 30, 2024, and 2023, the amounts earned from

the subscription agreement were approximately $ 567,000 and $ 550,000 , respectively.

These amounts were included as a component of net

sales in the accompanying condensed consolidated statements of operations.

On September 30, 2024, the Company had approximately $ 157,000

due from Stingray.

On December 31, 2023, the Company had approximately $ 269,000 due from Stingray for music subscription reimbursement.

Company determined that SMCB is a VIE as the Company provides financial support to SMCB.

While not contractually obligated, SMCB currently

relies on our reimbursement of certain costs under a Services Agreement (“MSA”) whereby SMCB agree to provide IT software

development services to support SemiCab’s US operations.

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.

As a result of this relationship SMCB has been determined to be

to the asset acquisition agreement of SemiCab, the Company entered into an option agreement granting the right to acquire all of the

issued and outstanding capital securities of SMCB, however the option agreement expired on August 31, 2024 unexercised.

Company further determined that it is not the primary beneficiary of SMCB as the Company does not have the power to direct or control

31, 2025 and 2024 (Unaudited)

Company determined that SMCB, which is a subsidiary of SemiCab, Inc., is a VIE as the Company provides financial support to SMCB.

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.

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 the accompanying condensed consolidated financials presented for this period.

of September 30, 2024, the Company has advanced approximately $ 776,000

to SMCB for estimated prepaid services to be provided by SMCB in accordance with the MSA which are a component of prepaid expenses

and other current assets on the accompanying condensed consolidated balance sheets.

During the three months ended September 30,

2024, the Company incurred approximately $ 422,000

in software support services under the MSA.

17 – SUBSEQUENT EVENTS

Purchase Agreement

October 22, 2024, the Company entered into a Securities Purchase Agreement (the “SPA”), pursuant to which the Company agreed

to issue and sell to each purchaser (i) an Original Issue Discount Senior Secured Note with a principal amount equal to such purchaser’s

subscription amount divided by 0.85 (each a “Note” and collectively, the “Notes”), and (ii) a number of shares

of common stock of the Company, par value $ 0.01 equal to (i) 2,300,000 multiplied by (ii) such purchaser’s subscription amount

divided by (iii) $ 2,000,000 (the “Shares”) (the transactions contemplated under the SPA, the “Offering”).The

aggregate gross proceeds to the Company were approximately $ 2.0 million, before deducting placement agent fees and expenses.

intends to use the net proceeds from the Offering for working capital and other general corporate purposes.

Company agreed to certain registration rights with respect to the Shares, as described in the SPA.

The Company also granted the purchasers

a right to participate up to an amount of 20 % in any issuance by the Company of common stock or common stock equivalents for cash, subject

to certain exceptions, during the 90 days after the closing of the Offering.

Securities LLC served as the placement agent in the Offering and received 7 % of the gross proceeds received by the Company and reimbursement

of the legal fees of its counsel.

Offering closed on October 24, 2024.

At the closing, the Company issued to the purchasers an aggregate of 2,300,000 shares of its common

stock and Notes in the aggregate principal amount of $ 2,352,941 for total proceeds of $ 2,000,000 net of original issue discount of $ 352,941 .

the closing, the Company issued a Note to each purchaser equal to such purchaser’s subscription amount divided by 0.85 .

were issued with an original issue discount of 15 %.

No interest shall accrue on the Notes unless and until an Event of Default (as defined

in the Notes) has occurred, upon which interest shall accrue at a rate of fourteen percent ( 14.0 %) per annum and shall be computed on

the basis of a three hundred sixty (360)-day year and twelve (12) thirty (30)-day months and shall be payable on the maturity date, which

is ninety (90) days from the issuance date of October 24, 2024 .

Notes also provide for redemption upon a change of control, as such term is defined under the Notes and mandatory redemption upon the

receipt of net proceeds from any offering of equity or debt by the Company.

The Company also has the right to prepay the Notes.

Notes are secured by a security interest in the assets and property of the Company and its subsidiaries and guaranteed by the Company’s

subsidiaries, pursuant to the terms of a Guarantee Agreement entered into among the purchasers and the Company and each of its subsidiaries.

Repurchase Agreement

November 1, 2024, the Company entered into Stock Repurchase Agreement (the “Repurchase Agreement”) with Regalia Ventures

LLC, a Delaware limited liability company (the “Seller”), pursuant to which the Company agreed to repurchase from the Seller

an aggregate of 1,098,901 issued and outstanding shares of common stock, par value $ 0.01 per share, of the Company (the “Shares”).

The shares of common stock to be repurchased were originally issued to the Seller on November 21, 2023, pursuant to a certain stock purchase

agreement, dated November 20, 2023.

consideration for the transaction contemplated by the Repurchase Agreement (the “Stock Repurchase”), when the transaction

closes, the Company has agreed to repurchase from the Seller, and the Seller has agreed to sell, assign and transfer to the Company,

all of the Seller’s right, title and interest in and to the Shares, at a price per Share equal to the higher of:

(1) the closing

price of the common stock on the last trading day immediately preceding the date of the Repurchase Agreement;

or (2) the highest volume

weighted average price (VWAP) of the common stock during a pricing period of ten (10) consecutive trading days prior to the date of the

Repurchase Agreement per share (the “Purchase Price”), and the Company shall issue to the Seller a promissory note in the

principal amount equal to the Purchase Price.

of the date of this filing, the repurchase of the shares has not yet closed.

and financial position in its consolidated financial statements.

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.

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

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.

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.

Holdings, Inc.

and Subsidiaries

to Condensed Consolidated Financial Statements

31, 2025 and 2024 (Unaudited)

17 – Acquisition of SMCB

May 2, 2025, the Company and SemiCab Holdings entered into an equity purchase agreement with SemiCab Inc.

pursuant to which:

Holdings purchased 9,999

shares of the issued and outstanding equity shares, Rs.

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

The Company completed the acquisition to expand its AI logistics and distribution into India.

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.

Forma Information

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.

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.

of Pro Forma Financial Information

Operating loss from continuing operations

Net loss available to common stockholders

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements