Algorhythm Holdings, Inc. (RIME) — 10-K

Filed 2026-04-02 · Period ending 2025-12-31 · 69,800 words · SEC EDGAR

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# Algorhythm Holdings, Inc. (RIME) — 10-K

**Filed:** 2026-04-02
**Period ending:** 2025-12-31
**Accession:** 0001493152-26-014724
**Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/923601/000149315226014724/)
**Origin leaf:** 31d1edcdda96afd3bb5afb1ebda5fb77ba5152655cc521652bb44067512b691a
**Words:** 69,800



---

**
UNITED
STATES**
**SECURITIES
AND EXCHANGE COMMISSION**
**Washington,
D.C. 20549**
**FORM
10-K**
****
(Mark
One)
| 
| Annual
Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 | 
|
| 
For
the fiscal year ended: | 
December
31, 2025 | 
| |
| 
| Transition
Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 | 
|
| 
For
the transition period from __________ to ___________ | |
| 
Commission
File Number: | 
001-41405 | 
| |
*
**ALGORHYTHM
HOLDINGS, INC.**
(Exact
name of registrant as specified in its charter)*
**
| 
Delaware | 
95-3795478 | |
| 
(State
or other jurisdiction of | 
(I.R.S.
Employer | |
| 
incorporation
or organization) | 
Identification
No.) | |
****
6301
NW 5th Way, Suite
2900, Fort
Lauderdale, FL
33309
(Address
of principal executive offices) (Zip Code)
(954)
800-0425
**(**Registrants
telephone number, including area code**)**
****
**Securities
registered pursuant to Section 12(b) of the Act:**
****
| 
Title
of Class | 
| 
Trading
Symbol(s) | 
| 
Name
of each exchange on which registered | |
| 
Common
Stock, Par Value $0.01 | 
| 
RIME | 
| 
The
Nasdaq Stock Market LLC | |
****
**Securities
registered pursuant to Section 12(g) of the Act: None**
****
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No 
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No 
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes No 
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T ( 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes No 
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer,
smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
| 
Large
accelerated filer | 
| 
Accelerated
filer | 
| |
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| 
| |
| 
Non-accelerated
filer | 
| 
Smaller
reporting company | 
| |
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| 
Emerging
growth company | 
| |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate
by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. 
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. 
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrants executive officers during the relevant recovery period pursuant to 240.10D-1(b). 
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes No 
As
of June 30, 2025, the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference
to the closing price for the common stock on such date of $2.45, as reported on the Nasdaq Stock Market, was $6,101,120.
As
of March 27, 2026, there were 14,651,665 shares of the registrants common stock outstanding.
**DOCUMENTS
INCORPORATED BY REFERENCE**
None.
| | |
**TABLE
OF CONTENTS**
****
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Page | |
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PART I | 
2 | |
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Item
1. | 
Business | 
2 | |
| 
Item
1A. | 
Risk Factors | 
10 | |
| 
Item
1B. | 
Unresolved Staff Comments | 
35 | |
| 
Item
1C. | 
Cybersecurity | 
35 | |
| 
Item
2. | 
Properties | 
36 | |
| 
Item
3. | 
Legal Proceedings | 
36 | |
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Item
4. | 
Mine Safety Disclosures | 
36 | |
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PART II | 
37 | |
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Item
5. | 
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 
37 | |
| 
Item
6. | 
[Reserved] | 
37 | |
| 
Item
7. | 
Managements Discussion and Analysis of Financial Condition and Results of Operations | 
38 | |
| 
Item
7A. | 
Quantitative and Qualitative Disclosures About Market Risk | 
48 | |
| 
Item
8. | 
Financial Statements and Supplementary Data | 
48 | |
| 
Item
9. | 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 
49 | |
| 
Item
9A. | 
Controls and Procedures | 
49 | |
| 
Item
9B. | 
Other Information | 
51 | |
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Item
9C. | 
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 
51 | |
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PART III | 
52 | |
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Item
10. | 
Directors, Executive Officers and Corporate Governance | 
52 | |
| 
Item
11. | 
Executive Compensation | 
59 | |
| 
Item
12. | 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 
65 | |
| 
Item
13. | 
Certain Relationships and Related Transactions, and Director Independence | 
67 | |
| 
Item
14. | 
Principal Accountant Fees and Services | 
70 | |
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PART IV | 
71 | |
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Item
15. | 
Exhibits and Financial Statement Schedules | 
71 | |
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Item
16. | 
Form 10-K Summary | 
76 | |
| i | |
****
**DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS**
This
report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended
(the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).
All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation,
statements regarding our future financial position, business strategy, budgets, projected revenue and costs, and plans and objectives
of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified
by the use of forward-looking terminology such as may, will, expects, intends,
plans, projects, estimates, anticipates, or believes or the negative
thereof or any variation thereon or similar terminology or expressions.
We
have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements
are not guarantees and are subject to known and unknown risks, uncertainties and assumptions that may cause our actual results to differ
materially from results proposed in such statements. Although we believe that the expectations reflected in such forward-looking statements
are reasonable, we can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual
results to differ materially from our expectations include, but are not limited to:
| 
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our
ability to fund our future growth; | |
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| |
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our
ability to executed upon our business plan; | |
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our
ability to attract and retain management; | |
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market
acceptance and demand of our services; | |
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labor
shortages and changes in employee compensation costs; | |
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our
ability to maintain and increase the value of our businesses; | |
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changes
in consumer preferences; | |
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our
ability to incorporate new and changing technologies; | |
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the
impact of inflation and other pricing pressures on our business; | |
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the
affect of competition and consolidation in the industries in which we operate; | |
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the
impact of any failure of our information technology system, any breach of our network security, and any security breaches of confidential
customer information; | |
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our
ability to comply with applicable international, federal, state and local laws and regulations; | |
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our
ability to protect our trademarks and other intellectual property; | |
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our
ability to obtain debt, equity or other financing on favorable terms, or at all; | |
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the
condition of the securities and capital markets generally; | |
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general
economic conditions, whether internationally, nationally or in the regional and local market areas in which we are doing business,
that may be less favorable than expected; | |
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other
economic, competitive, governmental (including new tariffs), legislative, regulatory, geopolitical and technological factors that
may negatively impact our business, operations and pricing; | |
and
statements of assumption underlying any of the foregoing, as well as any other factors set forth herein under *Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations* and *Item 1A. Risk Factors.* All subsequent written
and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the
foregoing. Except as required by law, we assume no duty to update or revise our forward-looking statements.
****
| | |
****
**PART
I**
****
**Item
1. Business.**
*Unless
the context requires otherwise, references in this Annual Report to we, us, and our, refer
to Algorhythm Holdings, Inc. and its consolidated subsidiaries. Unless otherwise expressly provided in this Annual Report, all historical
per share data, number of shares issued and outstanding, stock awards, and other common stock equivalents set forth herein relating to
our common stock have been adjusted to give effect to a reverse stock split of our common stock in a ratio of 1-for-200 effected on February
10, 2025.*
****
**Overview**
We
are an artificial intelligence (AI) technology company focused on the growth and development of SemiCab. SemiCab is an
AI-enabled software logistics and distribution business that utilizes our SemiCab technology platform to enable retailers, brands
and transportation providers to address common supply chain problems globally. We operate our SemiCab business through our
subsidiary, SemiCab Holdings, LLC.
Prior
to August 1, 2025, we had a second business, which was Singing Machine. Singing Machine was a home karaoke consumer products business
that designed and distributed karaoke products to retailers and ecommerce partners globally through our subsidiary, The Singing Machine
Company, Inc. We sold our Singing Machine business on August 1, 2025. Accordingly, we no longer own or operate the Singing Machine business.
Our
operations include our wholly-owned subsidiaries, SMC Logistics, Inc., a California corporation (SMCL), SMC-Music, Inc.,
a Florida corporation (SMCM), SMC (HK) Limited, a Hong Kong company (SMH), The Singing Machine Company, Inc.,
a Delaware corporation (SMC), and RIME Holdings, LLC (Rime), and our 80%-owned subsidiaries, SemiCab Holdings,
LLC, a Nevada limited liability company (SemiCab Holdings) and SMCB Solutions Private Limited, an Indian company (SMCB).
**Recent
Events and Developments**
*Reverse
Stock Split and Increase in Authorized Shares*
On
January 13, 2025, our stockholders voted to authorize our board of directors to effect a reverse stock split of the outstanding shares
of our common stock at a specific ratio within a range of 1-for-10 to a maximum of 1-for-250 and to amend our certificate of incorporation
to increase the number of authorized common stock from 100,000,000 to 800,000,000 shares. On January 14, 2025, our board of directors
approved a reverse stock split of 1-for-200 ratio and approved the filing of a certificate of amendment to our certificate of incorporation
to effect the reverse stock split and to increase our authorized shares of common stock from 100,000,000 to 800,000,000. The reverse
stock split took effect on February 10, 2025.
| 2 | |
*Acquisition
of SMCB*
On
May 2, 2025, we and SemiCab Holdings entered into an equity purchase agreement with SemiCab Inc. pursuant to which: (i) SemiCab Holdings
purchased 9,999 shares of the issued and outstanding equity shares, Rs. 10 par value, of SMCB, representing 99.99% of the issued and
outstanding equity shares of SMCB, for $1,750,000, the payment of which amount was evidenced by the issuance of a promissory note by
us to SemiCab, Inc., and (ii) we purchased the 20% membership interest in SemiCab Holdings then held by SemiCab, Inc. for aggregate consideration
consisting of 119,742 shares of our common stock. The transactions closed on May 2, 2025. The promissory note provides that $1,500,000
is due and payable by us on the first anniversary of the closing date and the remaining $250,000 is due and payable by us on the 18-month
anniversary of the closing date. The promissory note bears interest at six percent per annum.
On
the closing date, we and SemiCab Holdings entered into an amended and restated employment agreement with each of Ajesh Kapoor and Vivek
Sehgal pursuant to which Mr. Kapoor agreed to serve as the Chief Executive Officer and Chief Technology Officer of SemiCab Holdings and
Mr. Sehgal agreed to serve as the Chief Product Officer of SemiCab Holdings. Pursuant to the terms of the employment agreements, SemiCab
Holdings granted Messrs. Kapoor and Sehgal a membership interest in SemiCab Holdings with three quarters of each such grant subject to
certain forfeiture rights tied to continued employment with SemiCab Holdings. Additionally, Mr. Kapoor was granted the right to serve
as a member of our board of directors and the right to appoint an additional member of our board of directors upon the occurrence of
certain specified events.
Also
on the closing date, we, SemiCab Holdings, Ajesh Kapoor and Vivek Sehgal entered into an amended and restated limited liability company
agreement for SemiCab Holdings which sets forth the terms and conditions governing the operation and management of SemiCab Holdings.
In
January 2026, the Indian government approved the purchase of the remaining outstanding equity share of SMCB, representing 0.01% of the issued and outstanding equity shares of SMCB, from Sudheer Srinivas Kadandale
for $10.
**
| 3 | |
**
*Sale
of Singing Machine*
**
On
August 1, 2025, we entered into an asset purchase agreement with SMC and Stingray Music USA, Inc. (Stingray USA), a related
party and subsidiary of the Stingray Group, Inc. (Stingray Group), pursuant to which Stingray USA purchased substantially
all of the assets, and assumed most of the liabilities, associated with our Singing Machine business for $500,000. The transaction closed
on August 1, 2025.
**
*Streeterville
Capital Transaction*
On
August 21, 2025, we entered into a securities purchase agreement with Streeterville Capital, LLC, a Utah limited liability company (Streeterville), pursuant to which we agreed to issue and sell to Streeterville shares of our common stock in one or more pre-paid purchases (each, a Pre-Paid Purchase and collectively, the Pre-Paid Purchases)
for an aggregate purchase price of up to $20,000,000 (the Streeterville Transaction). We also agreed to issue an additional
95,694 shares of our common stock to Streeterville as a commitment fee for the pre-paid purchase facility established under the securities
purchase agreement (the Commitment Shares). The securities purchase agreement provides for a two-year commitment period
during which, subject to certain specified conditions, we may request additional Pre-Paid Purchases from Streeterville provided that
the amount requested is no less than $250,000 and the total outstanding balance of all Pre-Paid Purchases does not exceed $3,000,000.
The original issue discount for each additional Pre-Paid Purchase will be nine percent of the amount set forth in the applicable request
and each additional Pre-Paid Purchase will accrue interest at the rate of nine percent per annum. We also executed a guaranty, a security
agreement, and intellectual property security agreement in favor of Streeterville as part of the Streeterville Transaction. The Streeterville
Transaction closed on August 21, 2025.
Following
the funding of each Pre-Paid Purchase, Streeterville has the right, but not the obligation, to purchase from us that number of
shares of common stock up to the lesser of: (i) a number of shares of common stock equal in value to the outstanding balance of the
funded amount, and (ii) that number of shares of common stock such that Streeterville will not beneficially own greater than 9.99%
of our outstanding shares of common stock. The purchase price of the shares of common stock will be 90% of the lowest daily volume
weighted average price during the 10 trading days immediately prior to the purchase notice date, but not less than the floor price,
which is the greater of: (i) 20% of the Minimum Price as defined under Nasdaq Listing Rule 5635(d) prior to the
applicable closing of the Pre-Paid Purchase, and (ii) $0.10.
Pursuant
to the terms of the securities purchase agreement, we filed a registration statement on Form S-1 under the Securities Act with the SEC
to register the resale of the Commitment Shares and all shares of common stock issuable pursuant to the Pre-Paid Purchases. The registration
statement became effective on November 10, 2025.
Nasdaq
Listing Rule 5635(d) provides that shareholder approval is required prior to the issuance of shares of our common stock equal or greater
in number to 20% of the number of shares of our common stock issued and outstanding immediately prior to the completion of the proposed
issuance at a price that is less than the Minimum Price as such term is defined under Nasdaq Listing Rule 5635(d) in a
transaction that is not a public offering. We obtained the requisite shareholder approval for the Streeterville Transaction on November
20, 2025.
| 4 | |
We
may at any time prepay all or any portion of the outstanding balance of a Pre-Paid Purchase. In the event we elect to do so, we must
pay Streeterville an amount equal to 110% multiplied by the portion of the outstanding balance we elected to prepay. If an event of default
occurs under a Pre-Paid Purchase, the outstanding balance will become immediately due and payable. At anytime thereafter, upon written
notice given by Streeterville, the outstanding balance will increase by seven-and-a half percent and interest will begin accruing at
a rate of the lesser of 18% per annum or the maximum rate permitted under applicable law. Our obligations are secured by all of our assets
pursuant to a security agreement and have been guaranteed by our operating subsidiaries pursuant to a guarantee, each entered into with
Streeterville on August 21, 2025.
Univest
Securities, LLC served as the placement agent in the offering (Univest). We agreed to pay Univest a cash fee equal to eight percent of the aggregate gross proceeds that we receive from any
Pre-Paid Purchases that we complete and reimburse Univest for legal fees in the amount of $40,000.
Pre-Paid
Purchase #1
The
securities purchase agreement provides for an initial Secured Pre-Paid Purchase in the principal amount of $4,390,000, before deducting
an original issue discount of $360,000 and transaction expenses of $30,000 (the First Pre-Paid Purchase), the terms of
which are set forth on secured prepaid purchase #1 (Pre-Paid Purchase #1). The First Pre-Paid Purchase accrues interest
at the rate of nine percent per annum and has a maturity date of three years. We paid Univest a cash fee equal to eight percent of the aggregate gross proceeds that we received from the First
Pre-Paid Purchase. We currently have principal in the amount of approximately
$1,085,000 outstanding under the First Pre-Paid Purchase.
Pre-Paid
Purchase #2
On
November 13, 2025, we entered into Secured Pre-Paid Purchase #2 with Streeterville (Pre-Paid Purchase #2). Pre-Paid Purchase
#2 provides for a second Pre-Paid Purchase in the principal amount of $5,450,000, before deducting an original issue discount of $450,000
(the Second Pre-Paid Purchase). The Second Pre-Paid Purchase accrues interest at the rate of nine percent per annum and
has a maturity date of three years.
The
Second Pre-Paid Purchase was similar to the First Pre-Paid Purchase, however the Second Pre-Paid Purchase is secured by cash in an
amount not less than the lesser of: (i) $4,500,000, and (ii) 90% of the then-current outstanding balance of the Second Pre-Paid Purchase
(the PPP2 Minimum Balance Amount). The secured funds are being held in a deposit account (the DACA Account)
held by RIME Holdings, LLC, a Utah limited liability company and wholly-owned subsidiary of ours that we formed in connection with this
transaction (RIME Holdings), pursuant to a Deposit Account Control Agreement, dated November 13, 2025, by and among RIME
Holdings, Lakeside Bank, an Illinois banking company (Lakeside Bank), and Streeterville. Accordingly, of the $5,000,000
proceeds that we received from the Second Pre-Paid Purchase, $4,500,000 were placed in the DACA Account.
| 5 | |
We
have the right to use funds in the DACA Account to repay any portion of the outstanding balance of the Second Pre-Paid Purchase, but
only so long as the payment does not cause the outstanding balance to drop below the PPP2 Minimum Balance Amount. As long as no event
of default has occurred, the Company may withdraw from the Deposit Account any funds in excess of the PPP2 Minimum Balance Amount. RIME
Holdings executed a guaranty of the obligations outstanding under the Second Pre-Paid Purchase for the benefit of Streeterville.
We
entered into a new placement agency agreement with Univest that superseded the placement agency agreement that we previously entered
into with them on August 21, 2025. We agreed to pay Univest a cash fee equal to eight percent of the aggregate gross proceeds that we
receive from any Pre-Paid Purchases that we complete and reimburse Univest for legal fees in the amount of $50,000. The Second Pre-Paid
Purchase was repaid in full on December 11, 2025.
Pre-Paid
Purchase #3
On
December 19, 2025, we entered into Secured Pre-Paid Purchase #3 with Streeterville (Pre-Paid Purchase #3). Pre-Paid Purchase
#3 provides for a third Pre-Paid Purchase in the principal amount of $1,090,000, before deducting an original issue discount of $90,000
(the Third Pre-Paid Purchase). The Third Pre-Paid Purchase accrues interest at the rate of nine percent per annum and has
a maturity date of three years. We paid Univest a cash fee equal to eight percent of the aggregate gross proceeds that we received from
the Third Pre-Paid Purchase. The Third Pre-Paid Purchase was repaid in full on December 23, 2025.
Pre-Paid
Purchase #4
On
February 17, 2026, we entered into Secured Pre-Paid Purchase #4 with Streeterville (Pre-Paid Purchase #4). Pre-Paid Purchase
#4 provides for a fourth Pre-Paid Purchase in the principal amount of $10,355,000, before deducting an original issue discount of $855,000
(the Fourth Pre-Paid Purchase). The Fourth Pre-Paid Purchase accrues interest at the rate of nine percent per annum and
has a maturity date of three years. The Fourth Pre-Paid Purchase is similar to the Second Pre-Paid Purchase in that the Fourth Pre-Paid
Purchase is secured by cash in an amount not less than the lesser of: (i) $3,500,000, and (ii) 90% of the then-current outstanding balance
of the Fourth Pre-Paid Purchase (the PPP4 Minimum Balance Amount). Accordingly, of the $9,500,000 in proceeds that we received
from the Fourth Pre-Paid Purchase, $3,500,000 was placed in the DACA Account.
We
have the right to use funds in the DACA Account to repay any portion of the outstanding balance of the Fourth Pre-Paid Purchase, but
only so long as the payment does not cause the outstanding balance to drop below the PPP4 Minimum Balance Amount. As long as no event
of default has occurred, we may withdraw from the Deposit Account any funds in excess of the PPP4 Minimum Balance Amount. RIME Holdings
executed a guaranty of the obligations outstanding under the Fourth Pre-Paid Purchase for the benefit of Streeterville.
| 6 | |
We
paid Univest a cash fee equal to eight percent of the aggregate gross proceeds received by us from the Fourth Pre-Paid Purchase that
were not placed in the DACA Account. We will pay Univest a cash fee equal to eight percent of the funds held in the DACA Account when
they are released to us.
We
have not repaid any of the principal outstanding under the Fourth Pre-Paid Purchase.
**Our
SemiCab Technology Platform**
Traditional
logistics platforms and systems optimize visible demand by optimizing individual lanes within the logistics network. Freight planning,
execution, and exception management rely heavily on manual workflows and fragmented systems. As volumes increase, costs typically scale
linearly with headcount, limiting profitability and operational flexibility.
Our
SemiCab technology platform is an AI-enabled, cloud-based collaborative transportation platform that operates at the network level. It
achieves the scalability required to predict and optimize millions of loads and hundreds of thousands of trucks. It uses real-time data
from application programming interface (API)-based load tendering and pre-built integrations with transportation management
system (TMS) partners, warehouse management system (WMS) partners, and electronic logging device (ELD)
partners to orchestrate collaboration across manufacturers, retailers, distributors, and their carriers. It uses AI and machine learning
predictions and advanced predictive optimization models to enable fully loaded round trips. By pooling demand and supply across shippers,
regions, and timeframes, the platform identifies return legs and cross-lane flows that are invisible under conventional planning models.
This approach enables structural efficiency improvements rather than episodic or temporary gains.
The platform
directly supports stronger unit economics and capital efficiency for our customers. It has successfully enabled individual operators
to manage more than 2,000 loads annually. As volumes increase, our customers benefit from lower cost per load, greater asset
utilization, lower administrative overhead and more predictable service levels. By automating network-level decision-making, the
platform allows organizations to scale throughput without proportional increases in labor, infrastructure, or overhead.
We
are focused on expanding and enhancing our SemiCab technology platform to provide better transportation services to our customers as
well as to automate operational processes. The objective of these additions and enhancements is to build additional functionality and
improve or automate existing functions. This will make us more efficient, lower our costs of operation, enable us to provide more consistent
and reliable services, and reduce potential human error in our processes targeting transportation execution and billing.
We
employ a dedicated software development team that maintains and enhances our SemiCab technology platform.
****
**Our
Service Offering**
Our
service offering consists of contract-based, long-haul, full truckload transportation logistics and distribution services that utilize
our SemiCab technology platform. We currently provide our services in India and are actively marketing our services in the United States
and Europe.
| 7 | |
*Managed
Services*
**
In
India, we offer our services through a managed services model to retailers, suppliers and manufacturers and other shippers through our
own network of shippers and brokers. We primarily focus on full truck load and over-the-road transportation services. Our services are
sold directly to shippers via bids for transportation services. These bids are typically awarded for a selected number of routes for
a pre-determined period of time, normally up to a year.
*SaaS-Based
Services*
In
the U.S. and other countries, we offer our services through a software-as-a-service (SaaS) model called Apex
by selling subscriptions to shippers, carriers and third-party logistics providers (3PLs) to utilize our SemiCab technology
platform. Our software enables shippers and carriers to better manage their freight network by creating optimal lane bundles for bidding
and optimized execution of loads with better control over their data and analytics. Our software enables 3PLs to better manage their
operations for transportation execution by assisting them with shipper management, carrier management, document management, load operations
management, invoicing, integration services, and reporting and analytics.
Apex
optimizes both visible and predicted demand across the entire freight ecosystem, completely redefining the efficiencies that can be achieved
within a logistics network. Through Apex, shippers, carriers and 3PLs can:
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launch
their own branded logistics operating systems, embedding SemiCabs AI logic, dashboards, and APIs; | |
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| |
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create
multi-party freight networks that reduce empty miles and unlock shared efficiencies; | |
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| |
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integrate
seamlessly with existing TMS, WMS, and telematics systems through open APIs; and | |
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| |
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use
predictive analytics and benchmarking to identify cost savings and improve yield per lane. | |
Our
SemiCab technology platform enhances traditional logistics platforms by providing them with predictive, self-learning orchestration that
automates network coordination at scale. It continuously learns from network activity, dynamically adjusting routing, pooling, and capacity
allocation in real time.
**Sales
and Marketing**
Our
SemiCab logistics and distribution services are sold through our direct sales team who work with shippers, participate in preparing and
submitting transportation bids, and onboard shippers and customers to start operations. While the transportation services contracts are
signed for longer durations, generally up to a year, revenue from these services is recognized only after the loads from shippers are
executed and delivered by us. Our platform subscriptions are sold through a direct sales team. Sales are recognized on a rolling monthly basis
aligned with SaaS revenue models. We engage in only limited marketing and promotions at this time as we are primarily focused on creating
name recognition and visibility through appropriate social media channels, blogs, and press releases to share industry awards and customer
acquisition news.
| 8 | |
**Customers**
Our
customers are comprised primarily of large, fast-moving consumer products companies in India. Our target customers in the United States
and Europe are comprised primarily of 3PLs and carriers and shippers of consumer products.
**Competition**
The
transportation services industry is highly competitive and fragmented. We compete with traditional and non-traditional logistics companies,
including transportation providers that own equipment, third-party freight brokers, technology matching services, internet freight brokers,
carriers offering logistics services, and on-demand transportation service providers. We win business by providing reliable services
at lower costs and creating an industry-wide network that can operate more efficiently with less empty miles than the industry norm,
thus creating a more sustainable transportation network for the entire industry.
****
**Intellectual
Property**
We
rely on a combination of cybersecurity, trademarks, copyrights, trade secrets, and nondisclosure and non-competition agreements to establish
and protect our intellectual property and proprietary technology. In certain circumstances, we will partner with third parties to develop
proprietary technology, and, where appropriate, we have license agreements related to the use of third-party innovation in our technology.
The duration of our trademark registrations varies from country to country. However, trademarks are generally valid and may be renewed
indefinitely as long as they are in use and/or their registrations are properly maintained.
****
**Seasonality**
Our
operating results have been subject to seasonal trends as a result of, or as influenced by, numerous factors, including national holidays,
weather patterns, consumer demand, economic conditions, and other similar and subtle forces. Although seasonal changes in the transportation
industry have not had a significant impact on our cash flow or results of operations, we cannot guarantee that they will not adversely
impact us in the future.
**Regulatory
Matters**
The
Ministry of Road Transport and Highways is the primary regulator for the road transport and automotive industry in India, overseeing
policy, regulations, and standards in that country. The U.S. Department of Transportation regulates the transportation industry in the
United States. This federal agency mandates licensing, insurance and service requirements on the operators in this industry.
| 9 | |
We
are also subject to laws and regulations in the United States and India concerning the handling of personal information, including laws
that require us to notify governmental authorities and/or affected individuals of data breaches involving certain personal information.
Additionally,
as a publicly-traded company and issuer of stock, we are subject to and maintain compliance with various anti-corruption and anti-bribery
statutes such as the U.S. Foreign Corrupt Practices Act. We may in the future be subject to certain other foreign countries equivalent
statutes or programs in the countries in which we operate.
**Employees**
As
of March 27, 2026, we had a total of 49 employees, of which 46 were full-time employees and three were part-time employees. None of our
employees are represented by a collective bargaining unit or is a party to a collective bargaining agreement.
**Available
Information**
We
file reports and other materials with the Securities and Exchange Commission (SEC), including annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements. We make available free of charge through our website
at https://algoholdings.com/filings all materials that we file electronically with the SEC as soon as reasonably practicable after electronically
filing or furnishing such material with the SEC. These materials are also available on the SECs website at www.sec.gov.
The
information contained on, or accessible through, our website and the SECs website does not constitute a part of this report. The
inclusion of our website and the SECs website in this report is an inactive textual reference only.
****
**Item
1A. Risk Factors.**
****
An
investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors in addition to
other information in this report before purchasing our common stock. The risks and uncertainties described below are those that we currently
deem to be material and that we believe are specific to us, our industry and our stock. In addition to these risks, our business may
be subject to risks currently unknown to us. If any of these or other risks actually occurs, our business may be adversely affected,
the trading price of our common stock may decline and you may lose all or part of your investment.
| 10 | |
****
**Summary
Risk Factors**
**Risks
Related to Our Company**
| 
| We
have a history of losses, we can provide no assurance that we will ever become profitable,
and the audit report issued by M&K CPAs, PLLC in connection with our audited financial
statements as of and for the year ended December 31, 2025 includes an explanatory paragraph
stating that there is substantial doubt about our ability to continue as a going concern. | |
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| | | |
| 
| We
will need to raise additional capital in the future, which capital may not be available or,
if available, may not be available on acceptable terms. | |
| 
| | | |
| 
| Our
growth could strain our personnel and infrastructure resources. | |
| 
| | | |
| 
| Strategic
acquisitions and other transactions that we complete in the future could prove difficult
to integrate, disrupt our business, adversely affect our operating results and dilute stockholder
value. | |
| 
| | | |
| 
| We
depend upon our executive officers and may not be able to retain or replace these individuals
or recruit additional personnel if they leave, which could harm our business. | |
| 
| | | |
| 
| Our
success depends on our SemiCab technology platform attaining market acceptance by transportation
providers. | |
| 
| | | |
| 
| Our
failure or inability to enforce our trademarks, trade secrets and other proprietary rights
could adversely affect our image, brands and competitive position. | |
| 
| | | |
| 
| We
may not be able to protect our intellectual property rights throughout the world. | |
| 
| | | |
| 
| Our
information technology systems or data, or those of our service providers or customers or
users, could be subject to cyber-attacks or other security incidents, which could result
in significant liability, reputational damage and other adverse consequences to us. | |
| 
| | | |
| 
| The
failure of our information technology systems could significantly disrupt the operation of
our business. | |
| 
| | | |
| 
| We
rely on third parties for most of our management information systems and for other back-office
functions. | |
| 
| | | |
| 
| Failure
to protect the integrity and security of personal information of our customers and employees
could result in substantial costs, expose us to litigation and damage our reputation. | |
| 
| | | |
| 
| Issues
in the use of AI technologies in our SemiCab business may result in reputational harm or
liability to us, and our business, operating results, and financial results may be adversely
affected. | |
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| | | |
| 
| Any
significant changes in U.S. trade or other policies that block or restrict imports or increase
import tariffs could have a material adverse effect on results of operations. | |
| 
| | | |
| 
| Our
business, financial condition and results of operations may be materially adversely affected
by any negative impact on the global economy and capital markets resulting from the conflict
in Ukraine and the Middle East and other geopolitical tensions. | |
| 
| | | |
| 
| High
inflation and unfavorable economic conditions could negatively affect our business, financial
condition and results of operations. | |
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| | | |
| 
| We
are exposed to the credit risk of customers who are experiencing financial difficulties and
if these customers are unable to pay us, our revenue and results of operations will be adversely
impacted. | |
| 11 | |
| 
| We
may have trouble hiring additional qualified personnel. | |
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| | | |
| 
| The
industries in which we operate are subject to international, federal, state and local laws,
compliance with which is both complex and costly. | |
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| | | |
| 
| We
could be a party to litigation that could adversely affect us by diverting management attention,
increasing our expenses and subjecting us to significant monetary damages and other remedies. | |
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| | | |
| 
| Our
certificate of incorporation provides limitations on director liability and indemnification
of directors and officers and employees. | |
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| | | |
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| Our
insurance may not provide adequate levels of coverage against claims. | |
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| | | |
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| Our
inability or failure to recognize, respond to and effectively manage the accelerated impact
of social media could materially adversely impact our business. | |
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| | | |
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| An
impairment in the carrying value of our fixed assets, intangible assets or goodwill could
adversely affect our financial condition and results of operations. | |
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| | | |
| 
| We
are subject to risks related to the sale of our Singing Machine business. | |
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| | | |
| 
| Significant
adverse weather conditions and other disasters could negatively impact our results of operations. | |
**Risks
Related to the Streeterville Transaction**
****
| 
| The
sale of a substantial number of our securities in the public market by Streeterville and/or
by our existing security holders could cause the price of our common stock to fall. | |
| 
| | | |
| 
| Shares
of our common stock purchased by Streeterville may be issued at a price significantly below
the prevailing market price of our common stock, resulting in substantial dilution of existing
stockholders and a decrease in the price of our common stock. | |
| 
| | | |
| 
| We
may be required to make substantial cash payments to Streeterville, which could reduce the
amount of cash available to fund our operations. | |
**Risks
Related to Ownership of Our Securities**
****
| 
| We
may raise additional funds in the future through the issuance of equity securities or debt,
which funding may be dilutive to stockholders or impose operational restrictions on us. | |
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| | | |
| 
| The
market price of our common stock is likely to be highly volatile and subject to wide fluctuations. | |
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| | | |
| 
| Our
quarterly and annual operating results may fluctuate due to increases and decreases in sales
and other factors. | |
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| | | |
| 
| Our
common stock may be affected by price fluctuations, which could adversely impact the value
of our common stock. | |
| 
| | | |
| 
| FINRA
sales practice requirements may limit a stockholders ability to buy and sell our securities. | |
| 
| | | |
| 
| An
investment in our securities is speculative, and there can be no assurance of any return
on any such investment. | |
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| | | |
| 
| We
identified material weaknesses in our internal control over financial reporting during the
assessment of our internal control that we performed in connection with the preparation of
our audited consolidated financial statements included herein. | |
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| | | |
| 
| If
we are unable to establish and maintain an effective system of internal control, we may not
be able to accurately report our financial results on a timely basis or prevent fraud. | |
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| | | |
| 
| The
requirements of being a public company may strain our resources, divert managements
attention and affect our ability to attract and retain qualified board members. | |
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| | | |
| 
| If
we are not able to comply with the applicable continued listing requirements of the Nasdaq,
it could delist us, which may adversely affect the market price and liquidity of our common
stock. | |
| 
| | | |
| 
| New
laws, regulations, and standards relating to corporate governance and public disclosure may
create uncertainty for public companies, increase legal and financial compliance costs and
make some activities more time consuming. | |
| 
| | | |
| 
| As
a smaller reporting company under applicable law, we are subject to lessened
disclosure requirements, which could leave our stockholders without information or rights
available to stockholders of more mature companies. | |
| 
| | | |
| 
| Applicable
SEC rules governing the trading of penny stocks may limit the trading and liquidity
of our common stock, which may affect the trading price of our common stock. | |
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| | | |
| 
| | We
have never paid any dividends on our common stock and do not intend to pay any dividends on our common stock in the foreseeable future. | |
| 12 | |
**Risks
Related to Our Company**
**We
have a history of losses, we can provide no assurance that we will ever become profitable, and the audit report issued by M&K CPAs,
PLLC in connection with our audited financial statements as of and for the year ended December 31, 2025 includes an explanatory paragraph
stating that there is substantial doubt about our ability to continue as a going concern.**
****
We
incurred net losses available to common stockholders of $15,900,000 and $23,257,000 for our fiscal years ended December 31, 2025 and
2024, respectively, and had accumulated deficits of $65,072,000 and $49,172,000 as of December 31, 2025 and 2024, respectively. In addition,
net cash used by operating activities was $7,309,000 and $3,985,000 for our fiscal years ended December 31, 2025 and 2024, respectively.
Based upon this, our current cash resources and our internally generated cash flow projections, the audit report issued by M&K CPAS,
PLLC in connection with our audited financial statements as of and for the year ended December 31, 2025 includes an explanatory paragraph
stating that there is substantial doubt about our ability to continue as a going concern. Our future profitability is dependent upon
our ability to successfully execute upon our business plan. We can provide no assurance that we will be able to sustain or increase profitability
on a quarterly or annual basis. Accordingly, we may continue to generate losses in the future and, in the extreme case, may need to discontinue
operations.
**We
will need to raise additional capital in the future, which capital may not be available or, if available, may not be available on acceptable
terms.**
****
Our
current cash resources will not be sufficient to sustain our current operations for the next 12 months. As a result, we will need to
obtain additional capital through external sources of financing. We may attempt to obtain additional capital through the sale of equity
securities or the issuance of short- and long-term debt. If we raise additional funds by issuing shares of our common stock, our stockholders
will experience dilution. If we raise additional funds by issuing securities exercisable or convertible into shares of our common stock,
our stockholders will experience dilution in the event the securities are exercised or converted, as the case may be, into shares of
our common stock. Debt financing may involve agreements containing covenants limiting or restricting our ability to take specific actions,
such as incurring additional debt, issuing equity securities, making capital expenditures for certain purposes or above a certain amount,
or declaring dividends. In addition, any equity or debt securities that we issue may have rights, preferences and privileges senior to
those of the securities held by our stockholders.
While
we are optimistic about our ability to raise sufficient funds to continue our operations for at least one year after the date of this
report, we have not made arrangements to obtain additional capital and can provide no assurance that additional financing will be
available in an amount or on terms acceptable to us, if at all. Our ability to obtain additional capital will be subject to a number
of factors, including maintenance of our listing on the Nasdaq, market conditions and our operating
performance. These factors may make the timing, amount, terms or conditions of any proposed future financing transactions unattractive
to us. If we cannot raise additional capital when needed, or if such capital cannot be obtained on acceptable terms, we may not be able
to pay our costs and expenses as they are incurred, take advantage of future acquisition opportunities, respond to competitive pressures
or unanticipated events, or otherwise execute upon our business plan. This may adversely affect our business, financial condition and
results of operations and, in the extreme case, cause us to discontinue operations.
****
| 13 | |
****
**Our
growth could strain our personnel and infrastructure resources.**
****
We
expect to enter a stage of rapid growth in our operations which could place a significant strain on our management, administrative, operational
and financial infrastructure. Our future success will depend in part upon the ability of our management to manage growth effectively.
Our existing management systems, financial and management controls, and information and reporting systems and procedures may not be adequate
to support our expansion. Our ability to manage our growth effectively will require us to continue to enhance these systems, controls
and procedures and to locate, hire, train and retain qualified management and operating personnel. If we fail to successfully manage
our growth, we may be unable to execute upon our business plan, which could have an adverse effect on our business, financial condition
and results of operations.
**Strategic
acquisitions and other transactions that we complete in the future could prove difficult to integrate, disrupt our business, adversely
affect our operating results and dilute stockholder value.**
**
On
July 3, 2024, we completed the acquisition of substantially all of the assets and the assumption of certain liabilities of SemiCab, Inc.,
which was the owner of the United States component of our AI logistics and distribution business. On May 2, 2025, we and SemiCab Holdings
completed the acquisition of substantially all of the issued and outstanding equity shares of SMCB and we purchased the 20% membership
interest in SemiCab Holdings then held by SemiCab, Inc. We may continue to expand our business through the acquisition of additional
businesses in the future.
To
successfully execute any acquisition or development strategy, we need to identify suitable acquisition or development candidates, negotiate
acceptable acquisition or development terms, obtain appropriate financing, and successfully integrate any businesses and assets acquired.
Any acquisition or development transaction that we pursue, whether or not successfully completed, will subject us to numerous risks and
uncertainties, including:
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our
ability to accurately assess the value, growth potential, strengths, weaknesses, contingent and other liabilities, and potential
profitability of the target businesses and assets; | |
| 
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| |
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| 
| 
our
ability to complete the transaction and integrate the operations, technologies, services and personnel of any businesses or assets
acquired; | |
| 
| 
| 
| |
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| 
| 
the
costs associated with the completion of the transaction and the integration of the businesses or assets acquired; | |
| 
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| |
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| 
| 
our
ability to generate sufficient revenue to offset the transaction costs and achieve projected economic and operating synergies; | |
| 14 | |
| 
| 
| 
the
diversion of financial and management resources from existing operations and potential loss of key personnel; | |
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| |
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the
risks associated with entering new domestic markets and conducting operations where we have little or no prior experience; | |
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| |
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| 
the
possible negative impact of the transaction on our reputation and the reputation of the business that we acquire; and | |
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| |
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| 
| 
the
effect of any limitations imposed by federal and state tax laws on our ability to use all or a portion of our pre-transaction net
operating losses against post-transaction income. | |
If
we fail to properly evaluate and execute any acquisition or development transactions that we are currently pursuing or will pursue in
the future, our business, financial condition and results of operations could be seriously harmed. Additionally, we may be limited in
our ability to evaluate such acquisitions as a result of incomplete or inaccurate information from the target businesses.
Future
acquisitions may provide for additional contingent payments based on the achievement of performance targets or milestones. Management
must exercise considerable discretion when estimating the fair value of contingent payments. Although these estimates are based on managements
best knowledge of current events, the estimates could change significantly from period to period. Any changes to the significant unobservable
inputs used, including a change in the forecast of net sales for the earn-out periods, may result in a change in the fair value of contingent
consideration, and could have a material adverse impact on our results of operations. In addition, actual payments of contingent consideration
in the future could be different from the current estimated fair value of the contingent consideration. Further, these arrangements can
impact or restrict the integration of acquired businesses and can, and frequently do, result in disputes, including litigation. Any such
impact, restrictions or disputes could have a material adverse impact on our business and results of operations.
In
addition, acquisition and development transactions could result in us issuing equity securities or short- or long-term debt to finance
the transaction. The issuance of additional equity securities would result in dilution to our stockholders. The issuance of securities
exercisable or convertible into shares of our common stock would result in dilution to our stockholders in the event the securities are
exercised or converted, as the case may be, into shares of our common stock. Debt financing may involve agreements containing covenants
limiting or restricting our ability to take specific actions, such as incurring additional debt, issuing equity securities, making capital
expenditures for certain purposes or above a certain amount, or declaring dividends. In addition, any equity or debt securities that
we issue may have rights, preferences and privileges senior to those of the securities held by our stockholders. Future acquisition and
development transactions could also result in us assuming debt obligations and liabilities and incurring impairment charges related to
goodwill, investments and other intangible assets.
| 15 | |
****
**We
depend upon our executive officers and may not be able to retain or replace these individuals or recruit additional personnel if they
leave, which could harm our business.**
****
We
believe that we have benefited substantially from the leadership and experience of our executive officers, including Gary Atkinson, who
is our Chief Executive Officer, and Alex Andre, who is our Chief Financial Officer and General Counsel. Our executive officers may terminate
their employment with us at any time without penalty, and we do not maintain key person life insurance policies on any of our executive
officers. The loss of the services of any of our executive officers could have a material adverse effect on our business and prospects,
as we may not be able to find suitable individuals to replace such personnel on a timely basis. In addition, any such departure could
be viewed in a negative light by investors and analysts, which could cause the price of our common stock to decline. As our business
expands, our future success will depend greatly on our continued ability to attract and retain highly skilled and qualified executive-level
personnel. Our inability to attract and retain qualified executive officers could impair our growth and have an adverse effect on our
business, financial condition and results of operations.
**Our success depends on our SemiCab technology
platform attaining market acceptance by transportation providers.**
The continued growth
in market demand for and market acceptance of our SemiCab technology platform is critical to our continued success. Demand for our SemiCab
technology platform is affected by a number of factors, many of which are beyond our control, including the extension of our SemiCab
technology platform for new use cases, the timing of development and release of new products, features and functionality introduced by
us or our competitors, technological change and the growth or contraction of the market in which we compete. We may be unable to effectively
adapt our platform and respond to changes in technology and customer needs. If we are unable to meet customer demand, or if we otherwise
fail to achieve more widespread market acceptance of our SemiCab technology platform, our business, results of operations, financial
condition and growth prospects may be adversely affected.
**Our
failure or inability to enforce our trademarks, trade secrets and other proprietary rights could adversely affect our image, brands and
competitive position.**
****
We
own U.S. registered trademarks for many of the signs, designs and expressions that identify the services that we use in our business,
including SemiCab. We also have common law trademark rights for certain of our proprietary marks and rely upon trade secrets
to protect certain of our rights. We believe that our trademarks, trade secrets and other proprietary rights have significant value and
are important to our business and competitive position. We, therefore, devote time and resources to the protection of these rights. Our
policy is to pursue registration of our important trademarks whenever feasible and to oppose vigorously any infringement of our trademarks.
We protect our trade secrets and proprietary information, in part, by entering into confidentiality agreements with our employees and
consultants. We also seek to preserve the integrity and confidentiality of our proprietary information by maintaining physical security
of our premises and physical and electronic security of our information technology systems.
We
cannot assure you that the protective actions that we have taken will successfully prevent unauthorized use or imitation of our intellectual
property and proprietary rights by other parties. In the event third parties unlawfully use or imitate our intellectual property and
proprietary rights, we could suffer harm to our image, brands and competitive position. If we commence litigation to enforce our intellectual
property and proprietary rights, we will incur significant legal fees and may not be successful in enforcing our rights. Moreover, we
cannot assure you that third parties will not claim infringement by us of their intellectual property and proprietary rights in the future.
Any such claim, whether or not it has merit, could be time-consuming and distracting for management to defend, result in costly litigation,
require us to enter into royalty or licensing agreements, or cause us to change existing menu items or delay the introduction of new
menu items. As a result, any such claim could have a material adverse effect on our business, financial condition and results of operations.
| 16 | |
****
**We
may not be able to protect our intellectual property rights throughout the world.**
****
Filing,
prosecuting, and defending intellectual property rights on our technology in international jurisdictions is prohibitively expensive.
Competitors may use our technologies in jurisdictions where we have not obtained intellectual property rights to develop their own technology
and, further, may export otherwise infringing technology to territories where we have intellectual property rights, but where enforcement
is not as strong as that in the U.S. Their technology may compete with our technology in jurisdictions where we do not have any issued
or licensed patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from
competing.
Many
companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The
legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual
property protection, which could make it difficult for us to stop the infringement of any patents we may have in the future, or the use
of competing technologies in violation of our proprietary rights generally. Proceedings to enforce any patent rights we may have in the
future in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
**Our
information technology systems or data, or those of our service providers or customers or users, could be subject to cyber-attacks or
other security incidents, which could result in significant liability, reputational damage and other adverse consequences to us.**
****
The
ever-evolving threat landscape makes data security and privacy a critical priority. We maintain processes for key risk identification,
mitigation efforts, and day-to-day management of risks, including cybersecurity risks. In addition, our third-party vendors have experience
and expertise supporting mitigation of the potential cyber-attacks facing our organization and vulnerabilities facing our technology
infrastructure and potential cyber-attacks.
Although
it is difficult to determine the potential impacts from a cyber-attack or other security incident, we may experience negative impacts
such as reputational harm, inability to retain existing customers or attract new customers, exposure to legal claims and government action,
among others. In particular, given the interconnected nature of the supply chain and our significant presence in the industry, our AI
logistics and distribution business may be an attractive target for such attacks. The impact of a cyber-attack or other security incident
may have a material adverse impact on our financial condition, results of operations, availability of our systems, and growth prospects,
which makes cybersecurity risk management of critical importance.
We
have processes and programs in place to meet our global compliance obligations and work with our employees and teams across the globe
to ensure security and data protection principles are integrated into the way we conduct our business. Notwithstanding this, our operations
may be subject to successful breaches, employee malfeasance, or human or technological error. Any such acts could result in:
| 
| 
| 
unauthorized
access to, disclosure, modification, misuse, loss, or destruction of company, customer, or other third-party data or systems; | |
| 17 | |
| 
| 
| 
theft
of sensitive, regulated, or confidential data including personal information and intellectual property; | |
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| |
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| 
| 
the
loss of access to critical data or systems through ransomware, destructive attacks or other means; and | |
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| |
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business
delays, service or system disruptions or denials of service. | |
The
occurrence of any of these acts could have a material adverse effect on our business, financial condition and results of operations.
**The
failure of our information technology systems could significantly disrupt the operation of our business.**
****
We
rely on information technology systems and networks as part of our business. As such, we could experience a material disruption to our
operations if our internal computer systems and servers fail or suffer security breaches. The secure operation of our information technology,
or IT, systems and networks as well as the secure processing and maintenance of information is critical to our operations and business
strategy. Our ability to execute our business plan and to comply with regulatory requirements with respect to data control and data integrity
depends, in part, on the continued and uninterrupted performance of our IT systems. These systems are vulnerable to damage from a variety
of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security
and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar
disruptive problems. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our IT systems,
we may experience electronic break-ins, computer viruses, sustained or repeated system failures, or problems arising during the upgrade
of any of our IT systems that interrupt our ability to generate and maintain data. The occurrence of any of the foregoing could have
a material adverse effect on our business, financial condition and results of operations.
**We
rely on third parties for most of our management information systems and for other back-office functions.**
****
We
use third-party vendors to provide, support and maintain most of our management information systems. We also outsource certain accounting,
payroll and human resource functions to third-party service providers. The parties that we utilize for these services may not be able
to handle the volume of activity or perform the quality of service necessary for our operations. The failure of these parties to fulfill
their support and maintenance obligations or service obligations could disrupt our operations. Furthermore, the outsourcing of certain
of our business processes could negatively impact our internal control processes. Any such effects on our operations or internal controls
could have an adverse effect on our business, financial condition and results of operations.
**Failure
to protect the integrity and security of personal information of our customers and employees could result in substantial costs, expose
us to litigation and damage our reputation.**
****
We
receive and maintain certain personal information about our customers and employees. The use of this information by us is regulated at
the federal and state levels. If our security and information systems are compromised or our franchisees or employees fail to comply
with these laws and regulations and this information is obtained by unauthorized persons or used inappropriately, it could adversely
affect our reputation and results of operations and could result in litigation against us or the imposition of fines and penalties.
**Issues in the use of AI technologies in our
SemiCab business may result in reputational harm or liability to us, and our business, operating results, and financial results may be
adversely affected.**
We actively integrate AI technologies
in our SemiCab platform to enhance automation, analytics, customer experience, and operational efficiency. As we expand the use of AI-enabled
capabilities, we are exposed to risks inherent in the development and deployment of emerging technologies.
AI systems may generate inaccurate,
biased, incomplete, or unintended outputs due to limitations in algorithms, data quality, model design, or oversight. If AI-enabled features
fail to perform as intended or are perceived as unreliable, we could experience reputational harm, customer dissatisfaction, competitive
disadvantage, or legal exposure.
| 18 | |
Certain AI capabilities rely on
third party service providers, cloud infrastructure, or external models. Disruptions, security incidents, pricing changes, contractual
restrictions, or termination of such services could impair the availability or performance of AI-enhanced features and increase our costs.
The regulatory framework governing
AI, data privacy, and automated decision-making is evolving in the United States and internationally. New or expanded legal requirements
may require product modifications, increased compliance expenditures, or limitations on certain AI-driven functionality.
Our AI-enabled features process
sensitive customer data. Any failure to maintain appropriate safeguards, governance controls, or oversight could result in regulatory
scrutiny, litigation, or reputational harm.
We have implemented
governance frameworks, human oversight, security controls, and monitoring processes designed to manage risks associated with AI-enabled
capabilities. However, these measures may not be sufficient to prevent errors, misuse, security incidents, or regulatory non-compliance.
If our risk management efforts are ineffective, our business, financial condition, and results of operations could be adversely affected.
**Any
significant changes in U.S. trade or other policies that block or restrict imports or increase import tariffs could have a material adverse
effect on results of operations.**
****
In
recent years, the U.S. government has implemented substantial changes to U.S. trade policies, including import restrictions, increased
import tariffs and changes in U.S. participation in multilateral trade agreements, such as the United States-Mexico-Canada Agreement
to replace the former North American Free Trade Agreement. The U.S. government has assessed supplemental tariffs and quantitative restrictions
on U.S. imports of certain products from numerous countries throughout the world. U.S. trade policy continues to evolve in this regard.
Any significant changes in current U.S. trade or other policies that restrict imports or increase import tariffs could have a material
adverse effect upon results of our operations.
**Our
business, financial condition and results of operations may be materially adversely affected by any negative impact on the global economy
and capital markets resulting from the conflict in Ukraine and the Middle East and other geopolitical tensions.**
****
U.S.
and global markets are experiencing volatility and disruption as a result of the escalation of geopolitical tensions and military
conflicts in and around Ukraine, Israel, and other areas of the world.
Although the length and impact of any potential or ongoing military conflict is highly unpredictable, such conflicts have led to market
disruptions, including significant volatility in credit and capital markets.
For example, Russias
military interventions in Ukraine have led to sanctions and other penalties being levied by the U.S., European Union and other
countries against Russia. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military
actions and the resulting sanctions could adversely affect the global economy and financial markets.
In
addition, acts of war, terrorism or political instability in oil producing countries (e.g. the invasion of Ukraine by Russia and
conflicts in the Middle East, including the recent escalation involving Iran, and recent U.S. intervention in Venezuela) have resulted in increased volatility in the financial markets and the
markets for certain commodities including oil, which may significantly impact the manufacturers that we rely on.
Additionally,
the conflict in the Middle East between Israel and the government of Hamas in Gaza, Hezbollah in Lebanon, as well as groups in Syria and Iran, have caused disruptions in shipping lanes in the Red
Sea where some major cargo lines have opted to route their vessels away from the region which has increased the time required to reach
their destinations as well as increased time for vessels to return to their port of origin with empty containers. Continued shipping
line disruptions and delays may impact the availability and cost of shipping containers during peak shipping season.
| 19 | |
While
we have not experienced any direct impact from the conflicts in and around Ukraine, the Middle East and elsewhere, the extent and duration of the
military action, sanctions and resulting market and shipping lane disruptions are impossible to predict but could be substantial and
could adversely affect our operating results as they impact the global economy in the future.
**High
inflation and unfavorable economic conditions could negatively affect our business, financial condition and results of operations.**
****
Unfavorable
global or regional economic conditions may be triggered by numerous developments beyond our control, including inflation, geopolitical
events, health crises such as the COVID-19 pandemic, and other events that trigger economic volatility on a global or regional basis.
In particular, a significant deterioration in economic conditions, including economic slowdowns or recessions, increased unemployment
levels, inflationary pressures or disruptions to credit and capital markets, could lead to decreased consumer confidence and consumer
spending more generally, thus reducing consumer demand for our services. Such heightened inflationary levels and economic conditions
may negatively impact consumer disposable income and discretionary spending, negatively impacting our business, financial condition and
results of operations.
**We
are exposed to the credit risk of customers who are experiencing financial difficulties and if these customers are unable to pay us,
our revenue and results of operations will be adversely impacted.**
****
We
sell our services primarily to large, fast-moving consumer goods companies. Deterioration in the financial condition of our customers
could result in these customers not being able to pay us for our services. This would have a negative impact on our revenue and results
of operations.
**We
may have trouble hiring additional qualified personnel.**
****
As
we expand our technology development, service offerings and marketing activities, we will need to hire additional personnel and could
experience difficulties attracting and retaining qualified employees. Competition for qualified personnel could be intense due to the
limited number of individuals who possess the skills and experience required by such an industry. We may not be able to afford, attract
and retain quality personnel on favorable terms, or at all. In addition, to the extent we hire personnel from competitors, we may be
subject to allegations that such personnel have been improperly solicited or that they have divulged proprietary or other confidential
information, or that their former employers own their technology or service ideas. Any of these events could have a material adverse
effect on our business, financial condition and results of operations.
| 20 | |
****
**The
industries in which we operate are subject to international, federal, state and local laws, compliance with which is both complex and
costly.**
****
We
are subject to the U.S. Foreign Corrupt Practices Act (the FCPA) and other anti-corruption laws of the countries in which
we do business. The FCPA and other anti-corruption laws generally prohibit us and our employees and intermediaries from bribing, being
bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business
advantage. We and our commercial partners operate in several jurisdictions that pose a high risk of potential FCPA violations and we
participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the
FCPA or local anti-corruption laws.
We
are also subject to other laws and regulations governing our international operations, including regulations administered in the U.S.
and in the EU, including applicable export control regulations, economic sanctions on countries and persons, customs requirements and
currency exchange regulations. We cannot predict the nature, scope, or effect of future regulatory requirements to which our international
operations might be subject or the manner in which existing laws might be administered or interpreted. If we fail to comply with these
laws, we could be subject to civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our
business, financial condition, and results of operations.
We
can provide no assurance that we will be in full compliance with all applicable anticorruption laws, including the FCPA or other legal
requirements. Any investigation of potential violations of the FCPA or other laws and regulations by the United States, the European
Union or other authorities could have an adverse impact on our reputation, our business, results of operations and financial condition.
Furthermore, should we be found not to be in compliance with the FCPA or other laws and regulations, we may be subject to criminal and
civil penalties, disgorgement and other sanctions and remedial measures, as well as the accompanying legal expenses, any of which could
have a material adverse effect on our business, financial condition and results of operations.
**We
could be a party to litigation that could adversely affect us by diverting management attention, increasing our expenses and subjecting
us to significant monetary damages and other remedies.**
****
We
are subject to various claims and legal actions arising in the ordinary course of our business. Such claims may be expensive to defend
against and may divert resources away from our operations, regardless of whether they are valid or whether we are ultimately found liable.
In the event we are found liable for any such claims, we could be required to pay substantial damages. With respect to insured claims,
a judgment for monetary damages in excess of any insurance coverage that we have could result in us being required to pay substantial
damages. Any adverse publicity resulting from these claims may also adversely affect our reputation, regardless of whether we are found
liable. Any payments of damages or adverse publicity could have a material adverse effect on our business, financial condition and results
of operations.
| 21 | |
**Our
certificate of incorporation provides limitations on director liability and indemnification of directors and officers and employees.**
****
Our
certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors,
except for liability for any:
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breach
of their duty of loyalty to us or our stockholders; | |
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act
or omission not in good faith or that involves intentional misconduct or a knowing violation of law; | |
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unlawful
payment of dividends or unlawful stock repurchases, or redemptions as provided in Section 174 of the Delaware General Corporation
Law; or | |
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transaction
from which the directors derived an improper personal benefit. | |
These
limitations of liability do not apply to liabilities arising under the federal or state securities laws and do not affect the availability
of equitable remedies such as injunctive relief or rescission.
Our
certificate of incorporation and bylaws provide that we will indemnify our officers and directors to the fullest extent permitted by
law and that we will advance expenses incurred by any such persons in advance of the final disposition of any action or proceeding. We
believe that these provisions are necessary to attract and retain qualified persons as officers and directors.
The
limitation of liability in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our
directors for breach of their fiduciary duties. It may also reduce the likelihood of derivative litigation being brought against our
officers and directors even though an action, if successful, might provide a benefit to us and our stockholders. Our results of operations
and financial condition may be harmed to the extent we pay the costs of settlement and damage awards pursuant to these indemnification
provisions.
**Our
insurance may not provide adequate levels of coverage against claims.**
****
We
currently maintain insurance that we believe is appropriate for a business of our size and type. However, there are types of losses we
may incur that cannot be insured against or that we believe are not economically reasonable to insure against. Such losses could have
a material adverse effect on our business and results of operations. Unanticipated changes in the actuarial assumptions and management
estimates underlying our reserves for these losses could result in materially different amounts of expense under these programs, which
could have a material adverse effect on our business, financial condition and results of operations.
| 22 | |
**Our
inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could materially adversely
impact our business.**
****
There
has been a marked increase in the use of social media platforms, including weblogs (blogs), social media websites, and other forms of
Internet-based communications that provide individuals with access to a broad audience of consumers and other interested persons. Many
of our competitors are expanding their use of social media and new social medial platforms are rapidly being developed, potentially making
more traditional social media platforms obsolete. As a result, we need to continuously innovate and develop our social media strategies
in order to maintain broad appeal with customers and brand relevance.
Many
social media platforms immediately publish the content their subscribers and participants post, often without filters or checks on accuracy
of the content posted. Information posted on such platforms may be inaccurate or adverse to our interests, and we may have little or
no opportunity to redress or correct the information. The dissemination of such information online, regardless of its accuracy, could
harm our business, reputation and brands.
Other
risks associated with the use of social media include improper disclosure of proprietary information, personal identifiable information
and out-of-date information, as well as fraud, by our customers, employees, franchisees and business partners. The inappropriate use
of social media by our customers, employees, franchisees or business partners could increase our costs, lead to litigation or result
in negative publicity that could damage our business, reputation and brands.
**An
impairment in the carrying value of our fixed assets, intangible assets or goodwill could adversely affect our financial condition and
results of operations.**
****
We
evaluate the useful lives of our fixed assets and intangible assets to determine if they are definite- or indefinite-lived assets. Reaching
a determination on useful life requires significant judgments and assumptions regarding the expected life, future effects of obsolescence,
demand, competition, the level of required maintenance expenditures and the expected lives of other related groups of assets, as well
as other economic factors, such as the stability of the industry, legislative action that results in an uncertain or changing regulatory
environment and expected changes in distribution channels. We cannot accurately predict the amount and timing of any impairment of assets.
Should the value of fixed assets or intangible assets become impaired, we will have to recognize an impairment charge for the related
asset. In the event we recognize any impairment charges in the future, such charges may have a material adverse effect on our business,
financial condition and results of operations.
In
addition, we may be required to record goodwill in the event we acquire additional assets or businesses in the future. Goodwill represents
the excess of cost over the fair value of identified net assets of business acquired. We review any goodwill for impairment annually,
or whenever circumstances change in a way which could indicate that impairment may have occurred. Goodwill is tested at the reporting
unit level. We identify potential goodwill impairments by comparing the fair value of the reporting unit to its carrying amount, which
includes goodwill and other intangible assets. If the carrying amount of the reporting unit exceeds the fair value, this is an indication
that impairment may exist. We calculate the amount of the impairment by comparing the fair value of the assets and liabilities to the
fair value of the reporting unit. The fair value of the reporting unit in excess of the value of the assets and liabilities is the implied
fair value of the goodwill. If this amount is less than the carrying amount of goodwill, impairment is recognized for the difference.
A significant amount of judgment is involved in determining if an indication of impairment exists. Factors may include, among others:
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a
significant decline in our expected future cash flows; | |
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a
sustained, significant decline in our stock price and market capitalization | |
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a
significant adverse change in legal factors or in the business climate; | |
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unanticipated
competition; | |
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the
testing for recoverability of a significant asset group within a reporting unit; and | |
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slower
growth rates. | |
We
will be required to record a non-cash impairment charge if the testing performed indicates that goodwill has been impaired.
**We
are subject to risks related to the sale of our Singing Machine business.**
****
On
August 1, 2025, we entered into an asset purchase agreement with SMC and Stingray USA pursuant to which Stingray USA purchased substantially
all of the assets, and assumed most of the liabilities, associated with our Singing Machine business. The transaction closed on August
1, 2025. Accordingly, we no longer own or operate the Singing Machine business line. In connection with the transaction, we also entered
into a transitional services agreement with Stingray USA to provide certain limited services following the closing. The performance of
these services by us and other related conditions outside of our control could adversely affect our operations and future financial results.
As
a result of the sale of our Singing Machine business, we became a smaller, less diversified company than we were prior to the transaction,
which could make us more vulnerable to factors impacting our performance, such as changing market conditions and market volatility. In
addition, while it is intended that the transaction be tax-free to our stockholders for U.S. federal income tax purposes, there is no
assurance that the transaction will qualify for this treatment. If the sale is ultimately determined to be taxable, we or our stockholders
could incur income tax liabilities that could be significant. Any of these factors could have a material adverse effect on our business,
financial condition, results of operations, cash flows, and the price of our common stock.
**Significant
adverse weather conditions and other disasters could negatively impact our results of operations.**
****
Our
business could be negatively affected by adverse weather conditions and acts of God, such as regional winter storms, fires, floods, hurricanes,
tropical storms and earthquakes, and other disasters, such as pandemics, oil spills and nuclear meltdowns. The occurrence of any such
events in the future could cause substantial damage to our business and subject us to substantial repair costs that could have a material
adverse effect on our business, financial condition and results of operations.
| 24 | |
**Risks
Related to the Streeterville Transaction**
****
**The
sale of a substantial number of our securities in the public market by Streeterville and/or by our existing security holders could cause
the price of our common stock to fall.**
****
On
August 21, 2025, we completed the Streeterville Transaction. As of March 27, 2026, we had completed Pre-Paid Purchases for the aggregate
amount of $21,285,000 and had repaid Pre-Paid Purchases in the aggregate amount of $9,845,000 as a result of Streeterville electing to
exercise its right to purchase a total of 11,303,264 shares of our common stock under the First Pre-Paid Purchase, Second Pre-Paid Purchase
and Third Pre-Paid Purchase. The Second Pre-Paid Purchase and Third Pre-Paid Purchase have been paid off in full. However, we have principal
in the amount of approximately $1,085,000 and $10,355,000 outstanding under the First Pre-Paid Purchase and Fourth Pre-Paid Purchase,
respectively. In the event Streeterville elects to exercise its right to purchase additional shares of our common stock under the First
Pre-Paid Purchase or Fourth Pre-Paid Purchase, we may be required to issue a substantial number of additional shares of our common stock
to Streeterville. The sale of a substantial number of our shares of common stock in the public market by Streeterville and/or by our
other existing security holders, or the perception that those sales might occur, could result in a significant decline in the public
trading price of our common stock.
**Shares
of our common stock purchased by Streeterville may be issued at a price significantly below the prevailing market price of our common
stock, resulting in substantial dilution of existing stockholders and a decrease in the price of our common stock.**
****
Following
the funding of each Pre-Paid Purchase, Streeterville has the right, but not the obligation, to purchase from us that number of shares
of common stock up to the lesser of: (i) a number of shares of common stock equal in value to the outstanding balance of the funded amount,
and (ii) that number of shares of common stock such that Streeterville will not beneficially own greater than 9.99% of our outstanding
shares of common stock. The price per share used to calculate the number of shares to be issued to Streeterville is equal to 90% of the
lowest daily volume-weighted average price of our common stock during the ten (10) trading days immediately preceding the applicable
purchase date, but not less than the floor price, which is the greater of: (i) 20% of the Minimum Price prior to the applicable closing
of the Pre-Paid Purchase, and (ii) $0.10. If Streeterville exercises its right to purchase additional shares of our common stock under
Pre-Paid Purchases, the shares may be sold by us to Streeterville at a price significantly below the prevailing market price. This could
lead to substantial dilution of existing stockholders. This dilution, combined with the potential for downward pressure on our share
price if Streeterville promptly sells the shares in the open market, could reduce the market value of our common stock significantly.
****
| 25 | |
****
**We
may be required to make substantial cash payments to Streeterville, which could reduce the amount of cash available to fund our operations.**
****
If
Streeterville chooses to not exercise its right to purchase shares of common stock from us, we will be required to repay any outstanding
Pre-Paid Purchases in cash. We may not have sufficient cash on hand or available resources to meet such a repayment obligation, which
could force us to seek emergency financing or other arrangements which may not be available or, if available, may be on unfavorable terms.
In the event we do have sufficient funds available, the cash payment obligations, if triggered, could significantly reduce the cash we
have available to fund our operations or make necessary investments. This would adversely affect our financial condition, limit our ability
to pursue growth opportunities, and adversely affect our business prospects.
In
addition, the occurrence of an event of default under the Pre-Paid Purchases or certain change-of-control or other fundamental transactions
may accelerate repayment or suspend Streetervilles funding obligations to us. If an event of default occurs under a Pre-Paid Purchase,
the outstanding balance will become immediately due and payable. At any time thereafter, upon written notice given by Streeterville,
the outstanding balance will increase by seven-and-a half percent and interest will begin accruing at a rate of the lesser of 18% per
annum or the maximum rate permitted under applicable law. If we are involved in a change-of-control or other fundamental transaction,
we may be required to repay the Pre-Paid Purchases in cash. We may not have sufficient cash on hand or available resources to meet such
a repayment obligation, which could force us to seek emergency financing or other arrangements which may not be available or, if available,
may be on unfavorable terms. In the event we do have sufficient funds available, the cash payment obligations, if triggered, could significantly
reduce the cash we have available to fund our operations or make necessary investments. This would adversely affect our financial condition,
limit our ability to pursue growth opportunities, and adversely affect our business prospects.
**Risks
Related to Ownership of Our Securities**
**We
may raise additional funds in the future through the issuance of equity securities or debt, which funding may be dilutive to stockholders
or impose operational restrictions on us.**
****
On
December 6, 2024, we completed a public offering of an aggregate of 21,000 shares of our 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. Immediately prior to the completion of the offering, we had 71,076 shares of our common stock outstanding.
Additionally, due to price adjustment provisions contained in the Series A and Series B warrants, the Series A warrants became exercisable
into 1,133,652 shares of common stock and the Series B warrants became exercisable into 1,910,975 shares of our common stock. All of
the pre-funded warrants and Class B warrants were exercised in their entirety.
On
August 21, 2025, we completed the Streeterville Transaction. As of March 27, 2026, we had completed Pre-Paid Purchases for the aggregate
amount of $21,285,000 and had repaid Pre-Paid Purchases in the aggregate amount of $9,845,000 as a result of Streeterville electing to
exercise its right to purchase a total of 11,303,264 shares of our common stock under the First Pre-Paid Purchase, Second Pre-Paid Purchase
and Third Pre-Paid Purchase.
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Shareholders
who owned shares of our common stock immediately prior to the completion of the December 6, 2024 securities offering experienced immediate
and substantial dilution as a result of the issuance of the shares of common stock on December 6, 2024 and the subsequent exercise of
the pre-funded warrants and Class B warrants. Additionally, shareholders who owned shares of our common stock immediately prior to the
dates Streeterville elected to purchase 11,303,264 shares of our common stock under the First Pre-Paid Purchase, the Second Pre-Paid
Purchase and the Third Pre-Paid Purchase experienced immediate and substantial dilution.
We
may need to raise additional capital through the sale of equity securities or the issuance of short- and long-term debt during the next
12 months to fund our operations and growth. If we raise additional funds by issuing shares of our common stock, our stockholders will
experience dilution. If we raise additional funds by issuing securities exercisable or convertible into shares of our common stock, our
stockholders will experience dilution in the event the securities are exercised or converted, as the case may be, into shares of our
common stock. Debt financing may involve agreements containing covenants limiting or restricting our ability to take specific actions,
such as incurring additional debt, issuing equity securities, making capital expenditures for certain purposes or above a certain amount,
or declaring dividends. In addition, any equity securities or debt that we issue may have rights, preferences and privileges senior to
those of the securities held by our stockholders.
**The
market price of our common stock is likely to be highly volatile and subject to wide fluctuations.**
****
The
market price of our common stock may fluctuate significantly in response to a number of factors, many of which we cannot control, including:
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fluctuations
in our annual or quarterly operating results; | |
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changes
in capital market conditions or other adverse economic conditions; | |
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upgrades
or downgrades by securities analysts following our stock; | |
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changes
in estimates of our future financial results by securities analysts following our stock; | |
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our
achievement, or our failure to achieve, projected financial results; | |
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future
sales of our stock by our officers, directors or significant stockholders; | |
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investors
perceptions of our business and prospects relative to other investment alternatives; | |
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acquisitions,
joint ventures, capital commitments or other significant transactions by us or our competitors; | |
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global
economic, legal and regulatory factors unrelated to our performance; and | |
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the
other risks and uncertainties set forth herein. | |
The
stock market experiences significant price and volume fluctuations that affect the market price of the stock of many companies and that
are often unrelated or disproportionate to the operating performance of these companies. Market fluctuations such as these may seriously
harm the price of our common stock. Further, securities Series Action suits have been filed against companies following periods of market
volatility in the price of their securities. If such an action is instituted against us, we may incur substantial costs and a diversion
of management attention and resources, which would seriously harm our business, financial condition and results of operations. In addition,
the initiation of any such action could cause the price of our common stock to decline
**Our
quarterly and annual operating results may fluctuate due to increases and decreases in sales and other factors.**
****
Our
quarterly and annual operating results may fluctuate significantly because of a variety of factors, including:
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increases
or decreases in sales of our services; | |
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our
ability to operate effectively in new markets; | |
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labor
availability and costs for management and other personnel; | |
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changes
in consumer preferences and competitive conditions; | |
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negative
publicity relating to us, our vendors or the services we sell; | |
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disruptions
in the availability of trucks needed to complete shipments; | |
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changes
consumer confidence and fluctuations in discretionary spending; | |
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changes
in labor costs or other variable costs and expenses; | |
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potential
distractions or unusual expenses associated with our expansion plans; | |
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the
impact of inclement weather, natural disasters, and other calamities; and | |
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economic
conditions in the jurisdictions in which we operate and nationally. | |
As
a result of the factors discussed above, as well as the other factors set forth herein, our operating results for one fiscal quarter
or year are not necessarily indicative of results to be expected for any other fiscal quarter or year. These fluctuations may cause future
operating results to fall below our estimates or the expectations of our stockholders or the investment community in general. If our
results of operations do not meet the expectations of our stockholders or the investment community, the price of our common stock may
decline.
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**Our
common stock may be affected by price fluctuations, which could adversely impact the value of our common stock.**
****
Our
common stock has experienced, and is likely to experience, significant price and volume fluctuations in the future which could adversely
affect the market prices of our common stock without regard to our operating performance. In addition, we believe that factors such as
quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause
the market price of our common stock to fluctuate substantially. These fluctuations may also cause short sellers to periodically enter
the market in the belief that we will have poor results in the future. We cannot predict the actions of market participants and, therefore,
can offer no assurances that the market for our common stock will be stable or appreciate over time.
**FINRA
sales practice requirements may limit a stockholders ability to buy and sell our securities.**
****
Effective
June 30, 2020, the SEC implemented Regulation Best Interest requiring that A broker, dealer, or a natural person who is an associated
person of a broker or dealer, when making a recommendation of any securities transaction or investment strategy involving securities
(including account recommendations) to a retail customer, shall act in the best interest of the retail customer at the time the recommendation
is made, without placing the financial or other interest of the broker, dealer, or natural person who is an associated person of a broker
or dealer making the recommendation ahead of the interest of the retail customer... This is a significantly higher standard for
broker-dealers to recommend securities to retail customers than before under prior suitability rules of the Financial Industry Regulatory
Authority, Inc. (FINRA). FINRA suitability rules do still apply to institutional investors and require that in recommending
an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer.
Prior to recommending securities to their customers, broker-dealers must make reasonable efforts to obtain information about the customers
financial status, tax status, investment objectives and other information, and, for retail customers, determine that the investment is
in the customers best interest, and meet other SEC requirements. Both SEC Regulation Best Interest and FINRAs
suitability requirements may make it more difficult for broker-dealers to recommend that their customers buy speculative, low-priced
securities and may have the effect of reducing the level of trading activity in our securities. As a result, fewer broker-dealers may
be willing to make a market in our common stock.
**An
investment in our securities is speculative, and there can be no assurance of any return on any such investment.**
****
Investors
are cautioned that an investment in our securities is highly speculative and involves a significant degree of risk. The
success of our business and the ability to achieve our business goals and objectives, as outlined in this report, are subject to
numerous uncertainties, contingencies and risks. As such, there is no assurance that investors will realize a return on their investment
or that they will not lose their entire investment. Potential investors should carefully consider whether such a speculative investment
is suitable for their financial situation and investment objectives before purchasing securities.
| 29 | |
**We
identified material weaknesses in our internal control over financial reporting during the assessment of our internal control that we
performed in connection with the preparation of our audited consolidated financial statements included herein.**
****
Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require management to complete an annual assessment of our
internal control over financial reporting. During the preparation of our audited consolidated financial statements for the year ended
December 31, 2025, we identified several control deficiencies that have been classified as material weaknesses in our internal control
over financial reporting. A material weakness is a control deficiency that results in a more than remote likelihood that a material misstatement
of our annual or interim financial statements will not be prevented or detected on a timely basis by our employees in the normal course
of their assigned functions. Based on the material weaknesses identified, management concluded that our internal control over financial
reporting was not effective as of December 31, 2025.
Our
management, in consultation with our independent registered public accounting firm, concluded that the following material weaknesses
existed in the following areas as of December 31, 2025:
| 
| 
| 
We
lack sufficient resources in our accounting department restricting our ability to review and approve certain material journal entries
which increases the likelihood that a material misstatement of interim or annual financial statements might not be prevented. Management
evaluated our current process of review and approval of certain material journal entries and concluded this deficiency represented
a material weakness. | |
| 
| 
| 
| |
| 
| 
| 
We
lack sufficient resources in our accounting department, which restricts our ability to review certain material reconciliations related
to financial reporting in a timely manner. Due to our size and nature, segregation of all conflicting duties may not always be possible
and may not be economically feasible. Management evaluated the impact of our failure to have proper segregation between the preparation,
review and approval of account reconciliations and concluded that this control deficiency represented a material weakness. | |
| 
| 
| 
| |
| 
| 
| 
Due
to resource restrictions, we have not established a three-way match of documents or other controls precise enough to detect a material
misstatement in revenue. Management evaluated our current process of determining the occurrence of revenue and concluded this deficiency
represented a material weakness. | |
The
standards that must be met for management to assess internal control over financial reporting are complex and require significant documentation,
testing and possible remediation. We may encounter problems or delays in completing the activities necessary to make future assessments
of our internal control over financial reporting and completing the implementation of any necessary improvements. Future assessments
may require us to incur substantial costs and may require a significant amount of time and attention of management, which could seriously
harm our business, financial condition and results of operations.
| 30 | |
**If
we are unable to establish and maintain an effective system of internal control, we may not be able to accurately report our financial
results on a timely basis or prevent fraud.**
****
Effective
internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial
reports on a timely basis or prevent fraud, we may not be able to manage our business as effectively as we would if an effective internal
control environment existed, and our business and reputation with investors may be harmed. We have not performed an in-depth analysis
to determine if undiscovered failures of internal controls exist and may in the future discover areas of our internal control environment
that need improvement. If we are unable to establish and maintain an effective system of internal control, we may not be able to report
our financial results in an accurate and timely manner or prevent fraud.
We
are working on improving and simplifying our internal processes and implement enhanced controls to address the material weaknesses in
our internal control over financial reporting discussed above and to remedy the ineffectiveness of our disclosure controls and procedures.
We are addressing our accounting resource requirements to help remediate the segregation of duties and plan to implement a concise three-way
document matching procedure. These material weaknesses will not be considered as remediated until the applicable remediated controls
are operating for a sufficient period and management has concluded, through testing, that these controls are operating effectively.
**The
requirements of being a public company may strain our resources, divert managements attention and affect our ability to attract
and retain qualified board members.**
****
We
are a public company and subject to the reporting requirements of the Exchange Act, and the Sarbanes-Oxley Act of 2002. The Exchange
Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls
for financial reporting. Compliance with the Sarbanes-Oxley Act may divert internal resources and will take a significant amount of time
and effort to achieve. If we fail to maintain compliance with the Sarbanes-Oxley Act, we could be subject to sanctions or investigations
by the Nasdaq, the SEC, or other regulatory authorities. Furthermore, investor perceptions of us may decline as a result.
Any
failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. If
we are unable to implement necessary changes effectively or efficiently, it could harm our operations, financial reporting or financial
results and could result in an adverse opinion on internal controls from our independent auditors. We may need to hire a number of additional
employees with public accounting and disclosure experience in order to meet our ongoing obligations as a public company, particularly
if we become fully subject to the Sarbanes-Oxley Act and its auditor attestation requirements, which will increase costs. Our management
team and other personnel will need to devote a substantial amount of time to new compliance initiatives and to meeting the obligations
that are associated with being a public company, which may divert attention from other business concerns and have a material adverse
effect on our business, financial condition and results of operations.
| 31 | |
**If
we are not able to comply with the applicable continued listing requirements of the Nasdaq, it could delist us, which may adversely affect
the market price and liquidity of our common stock.**
****
Our
common stock currently trades on the Nasdaq under the symbol RIME. For our common stock to continue trading on the Nasdaq,
we must meet continued listing standards mandated by the Nasdaq. These continued listing standards include specifically enumerated criteria,
including maintaining a $1.00 minimum closing bid price and maintaining stockholders equity of at least $2,500,000. If we fail
to meet any of the continued listing standards of the Nasdaq, our common stock could be delisted.
On
August 26, 2024, we received a letter from the Nasdaq advising us that we did not meet the minimum $1.00 per share bid price requirement
for continued inclusion on the Nasdaq pursuant to Nasdaq Marketplace Listing Rule 5550(a)(2). To demonstrate compliance with this requirement,
the closing bid price of our common stock needed to be at least $1.00 per share for a minimum of 10 consecutive business days before
February 24, 2025.
On
August 26, 2024, we received an additional letter from the Nasdaq indicating that our stockholders equity as reported in our Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2024, did not satisfy the continued listing requirement under Nasdaq Listing
Rule 5550(b)(1), which requires that a listed companys stockholders equity be at least $2,500,000. We reported a stockholders
deficit of approximately $872,000 on June 30, 2024 in that quarterly report. Pursuant to the listing rule and instructions from Nasdaq,
we submitted a plan to regain compliance with the listing rule and were given an extension until November 14, 2024 to evidence compliance
through a public filing.
On
November 19, 2024, we filed our Quarterly Report on Form 10-Q for our fiscal quarter ended September 30, 2024 with the SEC. Therein,
we reported stockholders equity of approximately $2,700,000. That same day we filed a Form 8-K with the SEC stating that we believed
we had regained compliance with the stockholders equity requirement. On November 22, 2024, we received a letter from the Nasdaq
indicating that, based on the Form 10-Q that we filed on November 19, 2024, the Nasdaq had determined that we were in compliance with
the stockholders equity rule. The Nasdaq advised us that it would continue to monitor our ongoing compliance with the stockholders
equity requirement and, if at the time of our next periodic report, we fail to comply with the requirement, we may be subject to delisting.
On
December 30, 2024, we received notice from the Nasdaq indicating that the bid price for our common stock had closed below $0.10 per share
for the 13-consecutive trading day period ended December 27, 2024 and, accordingly, we would be subject to the provisions contemplated
under Nasdaq Listing Rule 5810(c)(3)(A)(iii) and our securities would be subject to delisting from Nasdaq unless we timely request a
hearing before the Nasdaq hearings panel. On February 10, 2025, we implemented a 200-for-1 reverse stock split. On that day, the closing
price of our common stock was $2.98 per share and the closing bid of our common stock remained above $1.00 for the next 10 consecutive
business days.
| 32 | |
On
March 25, 2025, we received a letter from the Nasdaq stating that we had regained compliance with the minimum bid price requirement of
$1.00 per share for continued listing on the Nasdaq, as set forth in Nasdaq Listing Rule 5550(a)(2). We will be subject to a mandatory
panel monitor for a period of one year from March 25, 2025. If, within that one-year monitoring period, the Nasdaq finds that we are
again out of compliance with the minimum bid price requirement, notwithstanding Nasdaq Listing Rule 5810(c)(2), then the Nasdaq will
issue a delist determination letter and we will have an opportunity to request a new hearing with the initial Nasdaq hearing panel or
a newly convened hearing panel if the initial panel is unavailable.
On
November 28, 2025, we received an additional letter from the Nasdaq indicating that our stockholders equity as reported in our
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2025, did not satisfy the continued listing requirement under
Nasdaq Listing Rule 5550(b)(1), which requires that a listed companys stockholders equity be at least $2,500,000. We reported
a stockholders equity of approximately $100,000 on September 30, 2025 in that quarterly report. Pursuant to the listing rule and
instructions from Nasdaq, we submitted a plan to regain compliance with the listing rule and were given an extension until May 27, 2026
to evidence compliance through a public filing.
If
we were unable to meet the continued listing of the Nasdaq, our common stock could be subject to delisting. If our common stock were
to be delisted from the Nasdaq, trading of our common stock most likely will be conducted in the over-the-counter market on an electronic
bulletin board established for unlisted securities such as the OTC Markets or in the pink sheets. Such a downgrade in our
listing market may limit our ability to make a market in our common stock and which may adversely affect the market price and liquidity
of our common stock.
**New
laws, regulations, and standards relating to corporate governance and public disclosure may create uncertainty for public companies,
increase legal and financial compliance costs and make some activities more time consuming.**
****
These
laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result,
may evolve over time as new guidance is provided by the courts and applicable government agencies. This could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. If our efforts
to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities
related to their application and practice, regulatory authorities may initiate legal proceedings against us, and our business may be
adversely affected.
| 33 | |
**As
a smaller reporting company under applicable law, we are subject to lessened disclosure requirements, which could leave
our stockholders without information or rights available to stockholders of more mature companies.**
****
We
are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act. As a smaller reporting company, we are permitted
to comply with reduced disclosure obligations in our SEC filings compared to larger public companies. This includes, but is not limited
to, simplified executive compensation disclosures, reduced financial statement requirements, and less stringent narrative disclosure
obligations. While these scaled disclosure requirements may reduce the burden on us and provide some cost savings, investors should be
aware that they may also receive less information about us than they would from a larger public reporting company. The designation as
a smaller reporting company and the accompanying reduced disclosure requirements could make it more difficult for investors to fully
assess the value and risks of an investment in our securities. Consequently, the designation as a smaller reporting company under the
SEC rules increases the risk to investors, as it may limit the amount of publicly available information to assess our performance, prospects,
and financial health. Potential investors should consider the implications of these reduced disclosure requirements when making an investment
decision.
**Applicable
SEC rules governing the trading of penny stocks may limit the trading and liquidity of our common stock, which may affect
the trading price of our common stock.**
****
Our
common stock is a penny stock as defined under Rule 3a51-1 of the Exchange Act and is accordingly subject to SEC rules
and regulations that impose limitations upon the manner in which our common stock can be publicly traded. These regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated
risks. Under these regulations, certain brokers who recommend penny stocks to persons other than established customers or certain accredited
investors must make a special written suitability determination regarding the purchaser and receive the purchasers written agreement
to participate in the transaction prior to sale. These regulations may have the effect of limiting the trading activity of our common
stock and reducing the liquidity of an investment in our common stock.
**We
have never paid any dividends on our common stock and do not intend to pay any dividends on our common stock in the foreseeable future.**
****
We
have never paid any dividends on our common stock and do not intend to pay any dividends on our common stock in the foreseeable future.
We intend to use any cash generated from our operations for reinvestment in the growth of our business. Any determination to pay dividends
in the future will be made by our board of directors and will depend upon our results of operations, financial condition, contractual
restrictions and growth plan, restrictions imposed by applicable law, and other factors deemed relevant by our board of directors. Accordingly,
the realization of a gain on stockholders investments in our common stock will depend on the appreciation of the price of our
common stock. We can provide no assurance that our common stock will appreciate in value or even maintain the price at which stockholders
purchased their shares.
****
| 34 | |
****
**Item
1B. Unresolved Staff Comments.**
****
None.
****
**Item
1C. Cybersecurity.**
****
**Risk
Management and Strategy**
**
We
recognize the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information
systems and protect the confidentiality, integrity, and availability of our data. We primarily rely on expert third-party managed IT
service providers to protect our IT systems from cybersecurity threats.
****
**Managing
Material Risks & Integrated Overall Risk Management**
****
As
one of the critical elements of our overall risk management program, our cybersecurity program is focused on the following key areas:
**
| 
| 
| 
Technical
Safeguards: We deploy technical safeguards that are designed to protect our information systems from cybersecurity threats, including
firewalls, anti-malware software, and monitoring software agents that are installed on our devices. | |
| 35 | |
| 
| 
| 
Third-Party
Management: Our financial data and primary operational systems are hosted off-site in virtual cloud environments which get periodically
backed up and can be restored in the event of a cybersecurity incident. We do not store sensitive customer credit card data within
our IT systems. | |
| 
| 
| 
| |
| 
| 
| 
Risk
Management: We have strategically integrated cybersecurity risk management into our broader risk management framework to promote
a company-wide culture of cybersecurity risk management. This integration ensures that cybersecurity considerations are an integral
part of our decision-making processes at every level. Our management team works closely with our third-party IT service provider
to continuously evaluate and address cybersecurity risks in alignment with our business objectives and operational needs. | |
**Oversight
of Third-Party Risk**
**
We
conduct annual assessments of the SOC reports of our providers because we are aware of the risks associated with third-party service
providers. This approach is designed to mitigate risks related to data breaches or other security incidents originating from third parties.
****
**Risks
from Cybersecurity Threats**
**
As
of the date of this report, there have been no cybersecurity incidents that have materially affected our results of operations or financial
condition.
****
**Item
2. Properties.**
We
lease office space in Fort Lauderdale, Florida for our corporate headquarters and lease office space in Bangalore, India for our
India operations. We believe these locations are adequate to support our operations for the next 12 months. We also
believe that these facilities are not unique and could be replaced, if necessary, at the end of the term of the existing
leases.
****
**Item
3. Legal Proceedings.**
On
February 11, 2025, Blue Yonder, Inc. (Blue Yonder) filed a civil action in the Superior Court of the State of Arizona against us for breach of contract and
to enforce a stipulated judgment entered against SemiCab, Inc. in connection with the liabilities related to Blue Yonder that we assumed
when it acquired SemiCab, Inc.s business. Blue Yonder alleges that, because we assumed these liabilities, Blue Yonder can enforce
the judgment against us. The judgment was in the amount of $509,119. On August 1, 2025, we filed an answer to the complaint and counterclaims
against Blue Yonder for breach of contract. On January 30, 3026, the court granted Blue Yonders motion for judgment on the pleadings.
The outcome of this matter is uncertain.
**
**Item
4. Mine Safety Disclosures.**
****
Not
applicable.
| 36 | |
**PART
II**
****
**Item
5. Market For Registrants Common Equity And Related Stockholder Matters And Issuer Purchases Of Equity Securities.**
**Market
Information**
Our
common stock is listed on the Nasdaq under the trading symbol RIME.
**Record
Holders**
As
of March 27, 2026, based upon information received from our transfer agent, there were 36 record holders of our outstanding common
stock. This number does not include: (i) any beneficial owners of common stock whose shares are held in the names of various dealers,
clearing agencies, banks, brokers and other fiduciaries, or (ii) broker-dealers or other participants who hold or clear shares directly
or indirectly through the Depository Trust Company or its nominee, Cede & Co.
**Dividends**
We
have not paid any dividends on our common stock to date, nor do we intend to pay any dividends on our common stock in the foreseeable
future. We intend to retain future earnings, if any, to finance the growth of our business. Future dividend policy will depend upon our
earnings, financial condition, contractual restrictions and other factors considered relevant by our board of directors and will be subject
to limitations imposed under Delaware law.
**Recent
Sales of Unregistered Securities**
None.
****
**Equity
Compensation Information**
The
information required by this item regarding equity compensation plans is incorporated by reference to the information set forth in *Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters* of this report.
****
**Purchases
of Equity Securities by the Issuer and Affiliated Purchasers**
None.
****
**Item
6. [Reserved].**
****
| 37 | |
****
**Item
7. Managements Discussion and Analysis of Financial Condition and Results of Operations.**
This
*Managements Discussion and Analysis of Financial Condition and Results of Operations* and other parts of this report contain
forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this report are based on
information available to us on the date hereof, and, except as required by law, we assume no obligation to update any such forward-looking
statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a number
of factors, including those set forth herein under *Item 1A. Risk Factors* and elsewhere in this report. See also *Disclosure Regarding Forward-Looking Statements* beginning on page 1 of this report. The following should be read in conjunction
with our consolidated financial statements beginning on page F-1 of this report.
**Overview**
We
are an AI technology company focused on the growth and development of SemiCab.
SemiCab is an AI-enabled software logistics and distribution business that utilizes our SemiCab technology platform to enable retailers, brands and transportation providers to address
common supply chain problems globally. We operate our SemiCab business through our subsidiary, SemiCab Holdings.
Prior
to August 1, 2025, we had a second business, which was Singing Machine. Singing Machine was a home karaoke consumer products business
that designed and distributed karaoke products to retailers and ecommerce partners globally through our subsidiary, The Singing Machine
Company, Inc. We sold our Singing Machine business on August 1, 2025. Accordingly, we no longer own or operate the Singing Machine business.
**
*SemiCab*
SemiCab
is an AI-enabled, cloud-based collaborative transportation platform built to achieve the scalability required to predict and optimize loads and the
use of trucks. To orchestrate collaboration across manufacturers, retailers, distributors, and their carriers, SemiCab uses real-time
data from API-based load tendering and pre-built integrations with TMS and ELD partners. To build fully loaded round trips, SemiCab uses
AI/ML techniques and advanced predictive optimization models.
Since
2020, SemiCab has enabled major retailers, brands and transportation providers to address their transportation needs. SemiCabs
Orchestrated Collaboration AI model has proven to increase transportation capacity, improve asset utilization, reduce empty miles,
lower logistics costs, and provide visibility into the entire transportation network. Models show that our SemiCab technology has the
capability of reducing costs through optimization. Additionally, our SemiCab technology has the potential to play a key role in the improved
sustainability model. Based on our proven ability to improve truck utilization rates, this could result in a dramatic reduction in the
carbon footprint of the industry. The optimization of existing truck utilization can add trucking capacity without adding more trucks,
drivers or driven miles which addresses common problems plaguing the industry like severe driver shortage and road congestion. Trucking
optimization could also reduce carbon emissions attributable to road freight.
| 38 | |
*Singing
Machine*
Through
Singing Machine, we engaged in the development, marketing, and sale of consumer karaoke audio equipment, accessories, and musical recordings.
We were a leading global karaoke and music entertainment company that specializes in the design and production of quality karaoke and
music enabled consumer products for adults and children. Our products were among the most widely available karaoke products internationally.
We sold our Singing Machine business on August 1, 2025. Accordingly, we no longer own or operate the Singing Machine business line.
**Strategy**
****
We
intend to invest in our SemiCab AI logistics and distribution business to develop and grow it into a significant revenue producer for
us. This will involve investments in the continued research and development of our technology, the hiring of additional qualified employees,
marketing and advertising initiatives, and back-office support. While this is a nascent business, it has already acquired several large,
fast-moving consumer products companies as customers. We believe that as existing customers experience the benefits of our SemiCab logistics
and distribution solutions, they will begin to increase their use of our services. We also believe that our ability to improve truck
utilization rates and improve trucking capacity without adding more trucks, drivers or driven miles will be of substantial interest to
additional companies that can benefit from our service.
We
acquired the United States component of our SemiCab business on July 3, 2024 and acquired the India component of our SemiCab business
on May 2, 2025. We may make additional investments in companies operating in the AI distribution and logistics space that we believe
are complementary to our business. Our investments could involve an acquisition of the assets or equity of complementary companies or
businesses or could involve a strategic partnership or joint venture with complementary companies or businesses or digital asset treasury
strategies. We believe that additional investments could provide us with new AI logistics and distribution technologies, services and
resources that we can implement across our entire business or could help us to more quickly expand our footprint into other parts of
the world. We are actively evaluating additional opportunities to expand our SemiCab business through investments in complementary AI
logistics and distribution businesses and companies.
**Financial
Results**
We
generated net sales of $4,391,000 for the year ended December 31, 2025, compared to $297,000 for the year ended December 31, 2024. The
increase in revenue was due primarily to the addition of net sales generated by our SemiCab business resulting from our acquisition of
SMCB on May 2, 2025. Cost of sales was $5,706,000 for the year ended December 31, 2025, compared to $491,000 for the year ended December
31, 2024. The increase in cost of sales was due primarily to the addition of freight, handling and servicing costs incurred by SMCB resulting
from our acquisition of SMCB on May 2, 2025.
| 39 | |
Our
operating expenses were $6,629,000 for the year ended December 31, 2025, compared to $8,248,000 for the year ended December 31, 2024.
The decrease in operating expenses was due primarily to a decrease of $3,592,000 related to the impairment of goodwill recorded in connection
with the acquisition of SemiCab, Incs business during the year ended December 31, 2024, partially offset by the increase in general
and administrative expenses incurred in the growth and development of the SemiCab business during the year ended December 31, 2025. We
incurred a net loss from continuing operations of $15,210,000 for the year ended December 31, 2025, compared to $18,884,000 for the year
ended December 31, 2024. The most significant contributors to the decrease in the net loss from continuing operations were decreases
in non-cash charges of $3,592,000 for impairment of goodwill and $8,889,000 for loss on the issuance of warrants. This decrease was partially
offset by an increase of $6,468,000 for non-cash charges for changes in the fair value of warrants liability and increases in general
and administrative expenses incurred in the growth and development of the SemiCab business.
We
generated net loss from continuing operations of $15,210,000, or $5.86 per share of common stock, for the year ended December 31, 2025,
compared to $18,884,000, or $270.44 per share of common stock, for the year ended December 31, 2024. The decrease was due primarily to
an increase of $4,094,000 for net sales and a decrease of $3,592,000 for impairment of goodwill. This was partially offset by an increase
of $5,215,000 for cost of sales. We had total assets of $12,724,000 and $18,302,000 at December 31, 2025, and 2024, respectively. Net
cash used by operating activities attributable to continuing operations was $7,309,000 for the year ended December 31, 2025, compared
to $3,985,000 for the year ended December 31, 2024.
****
**Outlook**
We
expect net sales to increase substantially over the next 12 months as we generate more business through our growing customer base in
India and as we begin to generate business in the United States and Europe. We expect costs of sales to increase over the next 12 months in
connection with the increase in net sales that we expect to generate from our SemiCab business. We expect operating expenses and net
loss available to common stockholders to increase over the next 12 months as we continue to fund the growth and development of our
SemiCab business.
Notwithstanding
the foregoing, in the event we complete additional acquisitions of controlling or non-controlling financial interests in other complementary
businesses or companies through mergers, acquisitions, joint ventures or other strategic initiatives, such as the acquisition of the
United States component of our SemiCab business on July 3, 2024 and the acquisition of the India component of our SemiCab business on
May 2, 2025, our financial results will include and reflect the financial results of the target entities. Accordingly, the completion
of any such transactions in the future may have a substantial beneficial or negative impact on our business, financial condition and
results of operations.
| 40 | |
****
**Critical
Accounting Estimates**
This
*Managements Discussion and Analysis of Financial Condition and Results of Operations* is based upon our audited consolidated
financial statements, which have been prepared in accordance with United States generally accepted accounting principles (GAAP).
The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. When making these estimates
and assumptions, we consider our historical experience, our knowledge of economic and market factors and various other factors, that
we believe to be reasonable under the circumstances. Actual results may differ under different estimates and assumptions.
The
accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding
of our consolidated financial statements because they inherently involve significant judgments and uncertainties. For a more complete
discussion of our accounting policies and procedures, see our consolidated financial statements beginning on page F-1 of this report.
*Revenue
Recognition*
We
recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers. All revenue is generated from contracts with customers.
We recognize revenue when services are performed for the customer in an amount, referred to as the transaction price, that reflects the
consideration to which we are expected to be entitled in exchange for those services. We determine revenue recognition utilizing the
following five steps: (i) identification of the contract with a customer; (ii) identification of the performance obligations in the contract
(promised services that are distinct); (iii) determination of the transaction price; (iv) allocation of the transaction price to the
performance obligations; and (v) recognition of revenue when, or as, we transfer control of the service for each performance obligation.
Our
performance obligations are established when a customer submits a purchase order notification and we accept the order. We identify performance
obligations as the delivery of the requested service at the location specified in the customers contract and/or purchase order.
Revenue from sales of services is recognized at the point in time when we transfer control to the customer, typically at the time when
the services are performed in full, at which time there are no further performance obligations remaining.
Our
contracts with customers consist of one performance obligation, which is the performance of services. Our contracts have no financing
elements. Payment terms are generally less than 90 days and have no further contract asset or liability obligations once control of the
service is transferred to the customer. Revenue is recorded in the amount of consideration we expect to receive for the sale of the service.
We
utilize independent contractors and third-party carriers to perform transportation services in connection with our SemiCab business.
In accordance with ASC Topic 606, Revenue Recognition: Principal Agent Considerations, we evaluate the terms of agreements with customers
and vendors to determine whether we act as principal or agent in each arrangement.
This
assessment focuses on whether control of the transportation service is obtained prior to transferring the service to the customer. Based
on this evaluation of the control model, we concluded that it acts as the principal and, accordingly we recognize revenue on a gross
basis. In the event we act as an agent, such revenue will be recognized net of the cost of purchased transportation.
All
revenue earned from contracts are presented net of discounts, allowances, and applicable taxes
| 41 | |
*Warrant
Liability*
We
classify the Series A and B warrants issued in our December 2024 public offering as a liability at its fair value. This liability is
subject to re-measurement at each balance sheet date. With each such re-measurement, the warrant liability will be adjusted to fair value,
with the change in fair value recognized in our statement of operations. The fair value of these warrants requires significate estimates
by management derived from unobservable inputs. Deviations from these estimates could have a significant affect on our financial results.
**Recent
Accounting Pronouncements**
In
May 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2025-03,
*Business Combinations (Topic 805) and Consolidation (Topic 810).* This ASU provides that a reporting entity involved in a business
combination effected primarily by the exchange of equity interests must consider the factors in Accounting Standards Codification (ASC)
805-10-55-12 through 55-15 to determine which entity is the accounting acquirer regardless of whether the legal acquiree is a Variable
Interest Entity (VIE). The amendments in ASU 2025-03 must be applied prospectively to any business combination that occurs
after the initial adoption date. ASU 2025-03 is effective for fiscal years beginning after December 15, 2026, including interim periods
within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial
statements and related disclosures.
In
May 2025, the FASB issued ASU 2025-04, *Compensation Stock Compensation (Topic 718) and Revenue from Contracts with Customers
(Topic 606)*, which clarifies the guidance in both ASC 718 and ASC 606 on the accounting for share-based payment awards that are granted
by an entity as consideration payable to its customer. The ASU is intended to reduce diversity in practice and improve existing guidance,
primarily by revising the definition of a performance condition and eliminating a forfeiture policy election for service
conditions associated with share-based consideration payable to a customer. In addition, the ASU clarifies that the guidance in ASC 606
on the variable consideration constraint does not apply to share-based consideration payable to a customer regardless of whether
an awards grant date has occurred (as determined under ASC 718). ASU 2025-04 is effective for fiscal years beginning after
December 15, 2026, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the
impact of this standard on our consolidated financial statements and related disclosures.
In
July 2025, the FASB issued ASU 2025-05, *Financial Instruments Credit Losses (Topic 326),*which provides a practical
expedient for measuring expected credit losses on current receivables and contract assets arising under Topic 606, *Revenue from
Contracts with Customers*. The ASU allows entities to assume that the macroeconomic conditions existing at the balance sheet date
will remain unchanged over the remaining life of those assets. The amendments are effective for fiscal years beginning after
December 15, 2025, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the
impact of this standard on our consolidated financial statements and related disclosures.
| 42 | |
In
August 2025, the FASB issued ASU 2025-06, *Intangibles Goodwill and Other Internal-Use Software (Subtopic 350-40).*This ASU simplifies the accounting for costs incurred in the development of internal-use software by removing the concept of multiple
project stages. Under the new guidance, capitalization begins when management authorizes and commits funding to the project and it is
probable that the project will be completed and the software placed into service. The amendments are effective for annual reporting periods
beginning after December 15, 2027, and interim periods within those years. Early adoption is permitted. We are currently evaluating the
impact of this standard on our consolidated financial statements and related disclosures.
In
September 2025, the FASB issued ASU 2025-07, *Derivatives and Hedging (Topic 815).*This ASU clarifies the scope of derivative accounting
for certain contracts and provides guidance on share-based, non-cash consideration received from a customer under Topic 606. The amendments
expand a scope exception for contracts whose underlying is based on an entitys own operations or activities, reducing the number
of arrangements that qualify as derivatives. The ASU also clarifies the accounting for share-based consideration received from a customer.
The amendments are effective for fiscal years beginning after December 15, 2026, including interim periods within those years. Early
adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.
In
December 2025, the FASB issued ASU 2025-11, *Interim Reporting (Topic 270): Narrow-Scope Improvements (ASU 2025-11)*. The
purpose of this ASU is to improve the guidance of Topic 270, Interim Reporting, by providing clarity on the current interim reporting
requirements. This amendment also provides additional guidance on what disclosures should be provided in interim reporting periods. The
amendments in this ASU also add to Topic 270 a principle that requires entities to disclose events since the end of the last annual reporting
period that have a material impact on the reporting entity. The amendments in this ASU are effective for all public companies for interim
reporting periods within annual reporting periods beginning after December 31, 2027. Early adoption is permitted. The amendments in this
ASU can be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements. We are
currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.
We
reviewed all other significant newly-issued accounting pronouncements and concluded that they either are not applicable to our operations
or that no material effect is expected on our consolidated financial statements as a result of future adoption.
****
| 43 | |
****
**Comparison
of the Years Ended December 31, 2025 and 2024**
**
*Net
Sales*
Net
sales consist of sales generated by our SemiCab business. Net sales increased $4,094,000 to $4,391,000 for the year ended December 31,
2025, compared to $297,000 for the year ended December 31, 2024. The increase in net sales was due primarily to the addition of net sales
generated by SMCB, which we acquired on May 2, 2025. We expect net sales to increase over the next 12 months as we generate more business
through our growing customer base in India and as we begin to generate business in the United States and Europe.
*Cost
of Sales*
Cost
of sales consists primarily of freight, handling and servicing costs that we incur in connection with our SemiCab business. Cost of sales
increased $5,215,000 to $5,706,000 for the year ended December 31, 2025, compared to $491,000 for the year ended December 31, 2024. The
increase in cost of sales was due primarily to the addition of freight, handling and servicing costs incurred by SMCB, which we acquired
on May 2, 2025. We expect costs of sales to increase over the next 12 months in connection with the increase in net sales that we expect
to generate from our SemiCab business.
****
*Operating
Expenses*
**
Operating
expenses consist of selling expenses, general and administrative expenses, and impairment of goodwill.
Selling
Expenses
Selling
expenses consist primarily of marketing and advertising activities that we engage in from time to time in connection with our SemiCab
business. Selling expenses were $4,000 for the year ended December 31, 2025. We did not incur any selling expenses for the year ended
December 31, 2024. We expect selling expenses to increase substantially over the next 12 months as we being to devote more resources
to marketing and advertising activities to support the growth of our SemiCab business in India, the United States and Europe.
**
General
and Administrative Expenses 
General
and administrative expenses consist primarily of payroll expenses, legal and accounting expenses, and other corporate expenses. General
and administrative expenses increased $1,973,000 to $6,629,000 for the year ended December 31, 2025, compared to $4,656,000 for the year
ended December 31, 2024. The increase was due primarily to increases in expenses incurred in connection with the operation of our SemiCab.
We expect general and administrative expenses to increase over the next 12 months as we continue to invest in the growth and development
of our SemiCab business.
| 44 | |
Impairment
of Goodwill
Impairment
of goodwill consists of the expense that we incurred from the write down of the goodwill that we recorded in connection with the acquisition
of substantially all of the assets of SemiCab, Inc. on July 3, 2024. We recorded impairment of goodwill of $3,592,000 for the year ended
December 31, 2024. We did not record any impairment of goodwill for the year ended December 31, 2025. We do not expect to incur any write
down of goodwill over the next 12 months.
**
*Other
Expenses*
****
Other
expenses consists primarily of loss on the issuance of warrants that we incurred in connection with the public offering of securities
that we completed on December 6, 2024, and interest expense that we incurred in connection with shares of common stock that we issued
to investors in our October 2024 notes offering and other financing transactions. We incurred only a minimal amount of other expenses
in connection with our SemiCab business. Other expenses decreased $3,227,000 to $7,215,000 for the year ended December 31, 2025, compared
to $10,442,000 for the year ended December 31, 2024. The decrease was due primarily to decreases of $2,087,000 for the loss that we incurred
in connection with the issuance and change in fair value of the Series A and Series B warrants that we sold in the public offering of
securities that we completed on December 6, 2024, and $1,588,000 for non-cash interest expense that we incurred in connection with shares
of common stock that we issued to investors in our various financing transactions during 2024. We expect other expenses to decrease substantially
over the next 12 months.
**
*Net
Loss Attributable to Non-Controlling Interest*
Net
loss attributable to non-controlling interest consists of the loss allocated to SemiCab, Inc., which owned a 20% of the outstanding membership
interests of SemiCab Holdings until May 2, 2025, and Ajesh Kapoor and Vivek Sehgal, who collectively owned 20% of the outstanding membership
interests of SemiCab Holdings beginning May 2, 2025. SemiCab Holdings owns our SemiCab business. We acquired our SemiCab business from
SemiCab, Inc. on July 3, 2024, and, as part of the transaction, granted SemiCab, Inc. a 20% membership interest in SemiCab Holdings.
The net loss attributable to non-controlling interest of $701,000 for the year ended December 31, 2025 represents the amount of loss
incurred by SemiCab Holdings that was allocated to SemiCab Inc. between January 1, 2025 and May 2, 2025, and to Ajesh Kapoor and Vivek
Sehgal through their collective 20% membership interest in SemiCab Holdings between May 2, 2025 and December 31, 2025. The net loss attributable
to non-controlling interest of $1,110,000 for the year ended December 31, 2024 represents the amount of loss incurred by SemiCab Holdings
that was allocated to SemiCab, Inc. through its 20% membership interest in SemiCab Holdings between July 3, 2024 and December 31, 2024.
We expect net loss attributable to non-controlling interest to increase over the next 12 months as we continue to invest in the development
and growth of our SemiCab business.
****
| 45 | |
****
**Liquidity
And Capital Resources**
Since
our inception, we have funded our operations primarily through cash generated by our operations, private sales of equity securities and
the use of short- and long-term debt. As of March 25, 2026, our cash and restricted cash balance was approximately $10,939,000.
Net
cash used in operating activities attributable to continuing operations was $7,309,000 during the year ended December 31, 2025, compared
to $3,985,000 during the year ended December 31, 2024. The increase of $3,324,000 was due primarily to an increase of $2,087,000 for
the loss that we incurred in connection with the issuance and change in fair value of the Series A and Series B warrants that we sold
in the public offering of securities that we completed on December 6, 2024, and to an increase of $3,592,000 related to the impairment
of goodwill from the purchase of SemiCab, Inc recorded during the year ended December 31, 2024. This was partially offset by a decrease
of $3,674,000 for loss from continuing operations.
Net
cash used in investing activities attributable to continuing operations was $1,770,000 during the year ended December 31, 2025, compared
to $2,175,000 during the year ended December 31, 2024. The decrease of $405,000 was due primarily to decreases of $605,000 for advances
to SMCB under our loan agreement with them, $593,000 for cash received in connection with our acquisition of SMCB on May 2, 2025, and
$415,000 for pre-acquisition advances to SemiCab. This was partially offset by increases of $758,000 for repurchases of shares of our
common stock and $419,000 for the capitalization of internal use software costs.
Net
cash provided by financing activities attributable to continuing operations was $9,686,000 during the year ended December 31, 2025, compared
to $11,648,000 during the year ended December 31, 2024. The decrease of $1,962,000 was due primarily to decreases of $12,932,000 for
proceeds from the sale of common stock and warrants and $2,000,000 for proceeds from the issuance of senior secured notes, net of discounts.
This was partially offset by an increase of $10,213,000 for proceeds from the issuance of promissory notes and a decrease of $2,578,000
for payments of senior secured notes and debt issuance costs.
Our
limited cash resources along with our recent history of recurring operating losses and decreases in working capital create substantial
doubt about our ability to continue as a going concern. To date, our capital needs have been met through cash
generated by our operations, sales of our equity securities and the use of short- and long-term debt to fund our operations. We
have used these sources of capital to pay virtually all of the costs and expenses that we have incurred to date. These costs and expenses
have been comprised primarily of the professional fees, employee compensation expenses, and general and administrative expenses discussed
above. We intend to continue to rely upon each of these sources to fund our operations and expansion
efforts, including additional acquisitions of controlling or non-controlling financial interests in other complementary businesses
and companies during the next 12 months.
| 46 | |
We
can provide no assurance that these sources of capital will be adequate to fund our operations and expansion efforts during the next
12 months. If these sources of capital are not adequate, we will need to obtain additional capital through alternative sources of financing.
We may attempt to obtain additional capital through the sale of equity securities or the issuance of short- and long-term debt. If
we raise additional funds by issuing shares of our common stock, our stockholders will experience dilution. If we raise additional funds
by issuing securities exercisable or convertible into shares of our common stock, our stockholders will experience dilution in the event
the securities are exercised or converted, as the case may be, into shares of our common stock. Debt
financing may involve agreements containing covenants limiting or restricting our ability to take specific actions, such as incurring
additional debt, issuing equity securities, making capital expenditures for certain purposes or above a certain amount, or declaring
dividends. In addition, any equity securities or debt that we issue may have rights, preferences and privileges senior to those
of the shares of common stock held by our stockholders.
We
have not made arrangements to obtain additional capital and can provide no assurance that additional financing will be available in an
amount or on terms acceptable to us, if at all. Our ability to obtain additional capital will be subject to a number of factors, including
market conditions and our operating performance. These factors may make the timing, amount, terms and conditions of any proposed future
financing transactions unattractive to us. If we cannot
raise additional capital when needed, or if such capital cannot be obtained on acceptable terms, we may not be able to pay our costs
and expenses as they are incurred, take advantage of future acquisition opportunities, respond to competitive pressures or unanticipated
events, or otherwise execute upon our business plan. This may adversely affect our business, financial condition and results of operations
and, in the extreme case, cause us to discontinue our operations.
**Nasdaq
Compliance**
On
August 26, 2024, we received a letter from the Nasdaq advising us that we did not meet the minimum $1.00 per share bid price requirement
for continued inclusion on the Nasdaq pursuant to Nasdaq Marketplace Listing Rule 5550(a)(2). To demonstrate compliance with this requirement,
the closing bid price of our common stock needed to be at least $1.00 per share for a minimum of 10 consecutive business days before
February 24, 2025.
On
August 26, 2024, we received an additional letter from the Nasdaq indicating that our stockholders equity as reported in our Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2024, did not satisfy the continued listing requirement under Nasdaq Listing
Rule 5550(b)(1), which requires that a listed companys stockholders equity be at least $2,500,000. We reported a stockholders
deficit of approximately $872,000 on June 30, 2024 in that quarterly report. Pursuant to the listing rule and instructions from Nasdaq,
we submitted a plan to regain compliance with the listing rule and were given an extension until November 14, 2024 to evidence compliance
through a public filing.
On
November 19, 2024, we filed our Quarterly Report on Form 10-Q for our fiscal quarter ended September 30, 2024 with the SEC. Therein,
we reported stockholders equity of approximately $2,700,000. That same day we filed a Form 8-K with the SEC stating that we believed
we had regained compliance with the stockholders equity requirement. On November 22, 2024, we received a letter from the Nasdaq
indicating that, based on the Form 10-Q that we filed on November 19, 2024, the Nasdaq had determined that we were in compliance with
the stockholders equity rule. The Nasdaq advised us that it would continue to monitor our ongoing compliance with the stockholders
equity requirement and, if at the time of our next periodic report, we fail to comply with the requirement, we may be subject to delisting.
| 47 | |
On
December 30, 2024, we received notice from the Nasdaq indicating that the bid price for our common stock had closed below $0.10 per share
for the 13-consecutive trading day period ended December 27, 2024 and, accordingly, we would be subject to the provisions contemplated
under Nasdaq Listing Rule 5810(c)(3)(A)(iii) and our securities would be subject to delisting from Nasdaq unless we timely request a
hearing before the Nasdaq hearings panel. On February 10, 2025, we implemented a 200-for-1 reverse stock split. On that day, the closing
price of our common stock was $2.98 per share and the closing bid of our common stock remained above $1.00 for the next 10 consecutive
business days.
On
March 25, 2025, we received a letter from the Nasdaq stating that we had regained compliance with the minimum bid price requirement of
$1.00 per share for continued listing on the Nasdaq, as set forth in Nasdaq Listing Rule 5550(a)(2). We will be subject to a mandatory
panel monitor for a period of one year from March 25, 2025. If, within that one-year monitoring period, the Nasdaq finds that we are
again out of compliance with the minimum bid price requirement, notwithstanding Nasdaq Listing Rule 5810(c)(2), then the Nasdaq will
issue a delist determination letter and we will have an opportunity to request a new hearing with the initial Nasdaq hearing panel or
a newly convened hearing panel if the initial panel is unavailable.
On
November 28, 2025, we received an additional letter from the Nasdaq indicating that our stockholders equity as reported in our
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2025, did not satisfy the continued listing requirement under
Nasdaq Listing Rule 5550(b)(1), which requires that a listed companys stockholders equity be at least $2,500,000. We reported
a stockholders equity of approximately $100,000 on September 30, 2025 in that quarterly report. Pursuant to the listing rule and
instructions from Nasdaq, we submitted a plan to regain compliance with the listing rule and were given an extension until May 27, 2026
to evidence compliance through a public filing.
****
**Off-Balance
Sheet Arrangements**
****
As
of December 31, 2025, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred
to as structured finance or special purpose entities, that had been established for the purpose of facilitating off-balance sheet arrangements
or for other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or
credit risk that could arise if we had engaged in such relationships.
****
**Item
7A. Quantitative and Qualitative Disclosures About Market Risk.**
We
are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required
under this item.
****
**Item
8. Financial Statements and Supplementary Data.**
Our
audited consolidated financial statements at and for the years ended December 31, 2025 and 2024, respectively, begin on page F-1 of this
report located immediately after the signature page hereto. As a smaller reporting company, we
are not required to provide supplementary financial information.
| 48 | |
****
**Item
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.**
None.
****
**Item
9A. Controls and Procedures.**
**Evaluation
of Disclosure Controls and Procedures**
We
maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act
reports is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms and that
such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and
procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance
that the controls and procedures would meet managements objectives.
As
of December 31, 2025, we carried out an evaluation of the effectiveness of our disclosure controls and procedures as defined by Rule
13a-15(e) under the Exchange Act under the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of
December 31, 2025, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are
required to disclose in reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms, and (ii) accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
****
**Managements
Report on Internal Control over Financial Reporting**
Our
management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external
purposes in accordance with GAAP. Internal control over financial reporting includes policies and procedures that:
(a)
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our
assets;
| 49 | |
(b)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of our consolidated financial statements
in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorization of our management
and directors; and
(c)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of our assets
that could have a material effect on our consolidated financial statements.
Internal
control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent
limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses
in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion
or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected
on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial
reporting process. Therefore, it is possible to design safeguards to reduce, though not eliminate, this risk.
Our
management used the framework set forth in the report entitled *Internal Control Integrated Framework (2013)*published
by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal
control over financial reporting. Based on this assessment, our management concluded that our internal control over financial reporting
was not effective at December 31, 2025, due to the existence of material weaknesses in our internal controls.
A
material weakness is a control deficiency, or a combination of control deficiencies, that results in a more than remote likelihood that
a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
Our management, in consultation with our independent registered public accounting firm, concluded that the following material weaknesses
existed in the following areas as of December 31, 2025:
1.
We lacked sufficient resources in our accounting department restricting our ability to review and approve certain material journal entries
which increases the likelihood that a material misstatement of interim or annual financial statements might not be prevented.
*2.*We lacked sufficient resources in our accounting department, which resulted in our ability to have proper segregation of duties between
the preparation, review and approval certain material reconciliations related to financial reporting in a timely manner.
**
3.
Due to our lack of sufficient resource restrictions in our accounting department, we have not established a three-way match of documents
or other controls precise enough to detect a material misstatement in revenue.
| 50 | |
To
remediate these material weaknesses, we intend to conduct a thorough review of the accounting department to ensure that the staff has
the appropriate training and experience. We may hire one or more accounting persons to assist us with our accounting and financial reporting
function. We also intend to implement more comprehensive written policies and procedures that address separation of duties and proper
accounting and financial reporting.
Notwithstanding
the existence of these material weaknesses in our internal controls, we believe that our consolidated financial statements fairly present,
in all material respects, our balance sheets at December 31, 2025 and 2024, and our statements of operations, stockholders deficit
and cash flows for the years ended December 31, 2025 and 2024.
This
annual report does not include an attestation report of our independent registered public accounting firm regarding internal control
over financial reporting. Our managements report was not subject to attestation by our independent registered public accounting
firm pursuant to rules of the SEC that permit us to provide only our managements report in this annual report.
****
**Changes
in Internal Control Over Financial Reporting**
There
has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.
**Item
9B. Other Information.**
****
**Rule
10b5-1 Trading Arrangements**
During
the three-month period ended December 31, 2025, none of our officers or directors adopted or terminated a Rule 10b5-1 trading
arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.
**Item
9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections.**
****
Not
applicable.
****
| 51 | |
****
**PART
III**
****
**Item
10. Directors, Executive Officers and Corporate Governance.**
The
following chart sets forth certain information about each of our directors and executive officers.
| 
Name | 
| 
Age | 
| 
Positions
Held | |
| 
Gary
Atkinson | 
| 
43 | 
| 
Chief
Executive Officer, Secretary and Chairman of the Board of Directors | |
| 
Alex
Andre | 
| 
51 | 
| 
Chief
Financial Officer and General Counsel | |
| 
Bernardo
Melo | 
| 
49 | 
| 
Director | |
| 
Harvey
Judkowitz | 
| 
81 | 
| 
Director | |
| 
Ajesh
Kapoor | 
| 
59 | 
| 
Director | |
| 
Scott
Thorn | 
| 
46 | 
| 
Director | |
| 
Kapil
Gupta | 
| 
58 | 
| 
Director | |
****
**Board
of Directors**
We
believe that our board of directors should be composed of individuals with sophistication and experience in many substantive areas that
impact our business. We believe that experience, qualifications or skills in the following areas are most important: (i) organizational
leadership and vision; (ii) strategic, financial and operational planning; (iii) AI technology and freight, logistics and distribution
industry experience; (iv) corporate restructuring and performance enhancement; (v) corporate finance; and (vi) experience as a board
member of other corporations. These areas are in addition to the personal qualifications described in this section. We believe that our
current board members possess the professional and personal qualifications necessary for board service and have highlighted particularly
noteworthy attributes for these board members below.
The
principal occupations and business experience of our current directors are as follows:
*Gary
Atkinson* has served as our Chief Executive Officer since May 2012, as our Secretary since January 2008, and as a member of our board
of directors since August 2022. Prior to that, Mr. Atkinson served as our Interim Chief Executive Officer from November 2009 to May 2012
and as our General Counsel from January 2008 to November 2009. Mr. Atkinson is a licensed attorney in Florida and Georgia. He graduated
from the University of Rochester with a bachelors degree in economics and received a Juris Doctorate and Masters in Business Administration
from Case Western Reserve University School of Law and Weatherhead School of Management.
We
believe that Mr. Atkinson is qualified to serve on our board of directors because of his strong leadership, business acumen and analytical
skills along with his extensive experience with capital markets.
| 52 | |
*Bernardo
Melo* has served as a member of our board of directors since July 2022. He has also served as our Chief Revenue Officer from April
2022 to August 2025 and as our Vice President of Global Sales and Marketing from 2008 to April 2022. He has also served as a member of
our board of directors since July 2022. Prior to that, Mr. Melo held dual roles with us managing the operations, licensing and sales
of the music division while concentrating on hardware sales for the Latin America and Canadian market as well as key U.S. accounts such
as Walmart.
We
believe that Mr. Melo is qualified to serve as a member of our board of directors because of his substantial sales and marketing expertise.
*Harvey
Judkowitz* has served as a member of our board of directors since March 2004 and serves as the Chairman of our Audit Committee. He
is licensed as a certified professional accountant in New York and Florida and has owned his own accounting firm since 1988. He also
served as the Chief Executive Officer and Chairman of our board of directors of UniPro Financial Services, a diversified financial services
company, up until the company was sold in September 2005. Prior to that he served as the President and Chief Operating Officer of Photovoltaic
Solar Cells, Inc., a producer of photovoltaic solar cells.
We
believe that Mr. Judkowitz is qualified to serve as a member of our board of directors because of his organizational leadership and management
skills and his accounting expertise.
*Ajesh
Kapoor* has served as the Chief Executive Officer of SemiCab Holdings, a subsidiary of ours that owns and operates our SemiCab AI
logistics and distribution business, since July 2024 and is the Founder and Chief Executive Officer of SemiCab, Inc., a company that
he founded in July 2018 that previously owned our SemiCab AI logistics and distribution business. He has also served as a member of
our board of directors since May 2025. From April 2015 to July 2018, Mr. Kapoor served as the Vice President of Product Management
of GT Nexus, a division of Infor, the worlds largest cloud-based B2B multi-enterprise network and execution platform for
global trade and supply chain management, and from April 2012 to March 2015, served as a Senior Director of GT Nexus. Earlier in his
career, Mr. Kapoor served as Global Head of Supply Chain Advisory Services of the Retail, CPG and Transportation Industry segments
of Wipro Technologies, a multi-national technology company that provides information technology, consulting and business process
services. He was also the Co-Founder and Chief Technology Officer of GEOCOMtms, a division of Blue Yonder Group, Inc. that provides
optimization software to manage multiple-stop daily delivery fleet routing and scheduling. Mr. Kapoor received a BE in Mechanical
Engineering from the Indian Institute of Technology, Roorkee, an MBA from Panjab University, and an MS in Operations Research from
the Georgia Institute of Technology.
We
believe that Mr. Kapoor is qualified to serve a member of our board of directors because of his extensive logistics and supply chain
technology innovation and leadership experience.
*Scott
Thorn* has served as a member of our board of directors since October 2025. Mr. Thorn has served as the President and Chief Operating
Officer of InvitedHome, a leading luxury hospitality and real estate services company operating in premier U.S. ski destinations, since
October 2024. Prior to that, he served as the Co-Founder and Chief Strategy Officer of Open Book Extracts, a cGMP-certified manufacturer
of premium federally legal hemp-derived cannabinoid ingredients and wellness products, from February 2019 to October 2024. Earlier in
his career, Scott served as a Managing Director of Douglas Wilson Companies, a leading provider of specialized business, receivership,
and real estate services.
| 53 | |
We
believe that Mr. Thorn is qualified to serve as a member of our board of directors because of his substantial experience as a strategic
thought leader executing aggressive business and revenue growth strategies for early-stage, high-growth companies.
*Kapil
Gupta* has served as a member of our board of directors since October 2025. Mr. Gupta is a seasoned global technology and business
leader with more than 20 years of experience driving innovation, operational excellence, and large-scale digital transformation across
the public and private sectors. He has served as the Service Line Leader for Application Operations Public Markets (US) at IBM,
a global technology innovator, since April 2025. He has also served as a Project Executive for Californias Medicaid Program since
May 2017. Earlier in his career, Mr. Gupta held senior leadership roles at Cambridge Solutions, a leading provider of software solutions
for supply chain, purchasing, and performance management, and Talisma Corporation, a leading provider of a digital customer engagement
platform, and served as a Manager at KPMG LLP, a leading global provider of audit, tax, and advisory services.
We
believe that Mr. Gupta is qualified to serve as a member of our board of directors because of his extensive experience as a global technology
leader offering deep technical expertise and strategic business acumen.
**Nomination
of Directors**
****
Our
Nominating and Corporate Governance Committee has the responsibility relating to assisting the Board in, among other things: (i) identifying
and screening individuals qualified to become members of our board of directors, consistent with criteria approved by our board of directors,
(ii) recommending to the Board the approval of nominees for director, (iii) developing and recommending to our board of directors a set
of corporate governance guidelines, and (iv) overseeing the evaluation of our board of director.
When
evaluating potential candidates for director, the Nominating Committee considers the entirety of each candidates credentials.
Qualifications for consideration as a director nominee may vary according to the particular areas of expertise being sought as a complement
to the existing composition of our board of directors. However, at a minimum, candidates for director must possess:
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high
personal and professional ethics and integrity; | |
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| 
| |
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the
ability to exercise sound judgment; | |
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| |
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the
ability to make independent analytical inquiries; | |
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| |
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the
willingness and ability to devote adequate time and resources to diligently perform board of directors and committee duties; and | |
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| |
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the
appropriate and relevant business experience and acumen. | |
| 54 | |
In
addition to these minimum qualifications, the Nominating Committee also takes into account when considering whether to nominate a potential
director candidate the following factors
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| 
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whether
the person possesses specific industry expertise and familiarity with general issues affecting our business; | |
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| |
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whether
the persons nomination and election would enable the Board to have a member that qualifies as an audit committee financial
expert as such term is defined by the Securities and Exchange Commission (the SEC) in Item 401 of Regulation
S-K; | |
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| |
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whether
the person would qualify as an independent director, as such term is defined in the Nasdaqs stock market rules; | |
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| |
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the
importance of continuity of the existing composition of our board of directors to provide long term stability and experienced oversight;
and | |
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| |
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the
importance of diversification among our board of directors, in terms of both the individuals involved and their various experiences
and areas of expertise. | |
**Committees
of the Board of Directors**
Our
Board has established an Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. Each of these committees
operates pursuant to a formal written charter. The charters for these committees, which have been adopted by our Board, contain a detailed
description of the respective committees duties and responsibilities and are available on our website at https://algoholdings.com/governance.
Below
is a description of each committee of the Board. Each of the committees has authority to engage legal counsel or other experts or consultants
as it deems appropriate to carry out its responsibilities. The Board has determined that each member of the Audit Committee, Compensation
Committee and Nominating and Corporate Governance Committee meet the independence requirements under the Nasdaqs current listing
standards and each member is free of any relationship that would interfere with his individual exercise of independent judgment.
**
*Audit
Committee*
The
members of our Audit Committee are Messrs. Judkowitz, Thorn, and Gupta. Mr. Judkowitz serves as the Chairman of our Audit Committee.
Each of Messrs. Judkowitz, Thorn, and Gupta is independent under the rules and regulations of the SEC and the listing standards of the
Nasdaq applicable to audit committee members. Our board of directors has determined that Mr. Judkowitz qualifies as an audit committee
financial expert within the meaning of SEC regulations and meets the financial sophistication requirements of the Nasdaq.
| 55 | |
Our
Audit Committee has the responsibility for, among other things: (i) selecting, retaining and overseeing our independent registered public
accounting firm, (ii) obtaining and reviewing a report by independent auditors that describe the accounting firms internal quality
control, and any materials issues or relationships that may impact the auditors, (iii) reviewing and discussing with the independent
auditors standards and responsibilities, strategy, scope and timing of audits, any significant risks, and results, (iv) ensuring the
integrity of our financial statements, (v) reviewing and discussing with our independent auditors any other matters required to be discussed
by PCAOB Auditing Standard No. 1301, (vi) reviewing, approving and overseeing any transaction between us and any related person and any
other potential conflict of interest situations, (vii) overseeing our internal audit department, (viii) reviewing, approving and overseeing
related party transactions, and (ix) establishing and overseeing procedures for the receipt, retention and treatment of complaints received
by us regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by our employees
of concerns regarding questionable accounting or auditing matters. The Audit Committee charter can be found online at https://algoholdings.com/governance.
**
*Compensation
Committee*
The
members of our Compensation Committee are Messrs. Judkowitz, Thorn and Gupta. Mr. Judkowitz serves as the Chairman of our Compensation
Committee. Each of Messrs. Judkowitz, Thorn and Gupta is independent under the rules and regulations of the SEC and the listing standards
of the Nasdaq applicable to compensation committee members. Our Compensation Committee has the responsibility for, among other things:
(i) reviewing and approving the chief executive officers compensation based on an evaluation in light of corporate goals and objectives,
(ii) reviewing and recommending to the Board the compensation of all other executive officers, (iii) reviewing and recommending to the
Board incentive compensation plans and equity plans, (iv) reviewing and discussing with management compensation information and related
information to be included in this report and proxy statements, and (v) reviewing and recommending to the board of directors for approval
procedures relating to say on pay votes. The Compensation Committee charter can be found online at https://algoholdings.com/governance.
*Nominating
and Corporate Governance Committee*
The
members of our Nominating and Corporate Governance Committee are Messrs. Judkowitz, Gupta and Thorn. Mr. Thorn serves as the Chairman
of our Nominating and Corporate Governance Committee. Each of Messrs. Judkowitz, Gupta and Thorn is independent under the rules and regulations
of the SEC and the listing standards of the Nasdaq applicable to nominating committee members. Our Nominating and Corporate Governance
Committee has the responsibility relating to assisting the Board in, among other things: (i) identifying and screening individuals qualified
to become members of our board of directors, consistent with criteria approved by our board of directors, (ii) recommending to the Board
the approval of nominees for director, (iii) developing and recommending to our board of directors a set of corporate governance guidelines,
and (iv) overseeing the evaluation of our board of director. The Nominating and Corporate Governance Committee charter can be found online
at https://algoholdings.com/governance.
| 56 | |
****
**Executive
Officers**
****
*Gary
Atkinson* has served as our Chief Executive Officer since May 2012, as our Secretary since January 2008, and as a member of our board
of directors since August 2022. His background appears above under * Board of Directors*.
Alex
Andre has served as our Chief Financial Officer and General Counsel since February 2025. Mr. Andre brings us nearly 25 years of executive
management, financial, legal and operational experience. He most recently served as the Chief Financial Officer of Lemnature AquaFarms
Corporation, a plant-based ingredients manufacturer for the food, beverage and nutrition markets, from October 2022 to September 2023.
Prior to that, Mr. Andre served as the Chief Financial Officer and General Counsel of M.H. Enterprises, Inc., the owner and franchisor
of the Teriyaki Madness restaurant brand, from March 2021 to September 2022. Before that, he served as the Chief Financial
Officer of ARC Group, Inc., a national, multi-brand, multi-unit restaurant holding company, from July 2019 to March 2021, and as its
General Counsel from October 2019 to March 2021. Earlier in his career, Mr. Andre served as an accountant for KPMG LLP before serving
as a corporate & securities attorney for regional and international law firms.
****
**No
Family Relationships**
There
is no family relationship between any director and executive officer or among any directors or executive officers.
**Involvement
in Certain Legal Proceedings**
None
of our directors and executive officers have been involved in any of the following events during the past ten years that we consider
to be material to an evaluation of their respective abilities or integrity:
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any
bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer
either at the time of the bankruptcy or within two years prior to that time; | |
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| |
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| 
any
conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor
offenses); | |
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| |
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being
subject to any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking
activities or to be associated with any person practicing in banking or securities activities; | |
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| |
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being
found by a court of competent jurisdiction in a civil action, the SEC or the CFTC to have violated a Federal or state securities
or commodities law, and the judgment has not been reversed, suspended, or vacated; | |
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| |
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being
subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed,
suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law
or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or
fraud in connection with any business entity; or | |
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| |
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being
subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization,
any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members
or persons associated with a member. | |
****
| 57 | |
****
**Code
of Ethics**
We
have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer
or controller, and persons performing similar functions. Our Code of Ethics is designed to deter wrongdoing and promote: (i) honest and
ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
(ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and
in other public communications that we make; (iii) compliance with applicable governmental laws, rules and regulations; (iv) prompt internal
reporting of violations of the code to an appropriate person or persons identified in the code; and (v) accountability for adherence
to the code. Our Code of Ethics is available on our website at https://algoholdings.com/governance.
**Section
16(a) Beneficial Ownership Reporting Compliance**
Section
16(a) of the Exchange Act requires our officers and directors, and persons who beneficially own more than 10% of the outstanding shares
of our common stock, to file reports of ownership and changes in ownership concerning their shares of our common stock with the SEC and
to furnish us with copies of all Section 16(a) forms they file. We are required to disclose delinquent filings of reports by such persons.
Based
solely upon a review of Forms 3, Forms 4, and Forms 5 furnished to us pursuant to Rule 16a-3 under the Exchange Act, we believe that
all such forms required to be filed pursuant to Section 16(a) of the Exchange Act during the year ended December 31, 2024 were timely
filed by the officers, directors, and security holders required to file such forms, with the exception of the following: (i) Harvey Judkowitz
failed to file a Form 4 for the receipt of a stock option for 19,532 shares of our common stock and a restricted stock award for 19,532
shares of our common stock on November 20, 2025; (ii) Bernardo Melo failed to file a Form 4 for the receipt of a stock option for 39,063 shares of our common stock
and a restricted stock award for 19,532 shares of our common stock on November 20, 2025; (iii) Scott Thorn failed to file a Form 4 for
the receipt of a stock option for 39,063 shares of our common stock and a restricted stock award for 19,532 shares of our common stock
on November 20, 2025, and (iv) Kapil Gupta failed to file a Form 4 for the receipt of a stock option for 39,063 shares of our common
stock and a restricted stock award for 19,532 shares of our common stock on November 20, 2025. Messrs. Judkowitz, Melo and Thorn each
subsequently filed a Form 4 to disclose these transactions.
| 58 | |
**Insider
Trading Policy and Procedures**
We
have adopted an insider trading policy governing the purchase, sale, and/or other dispositions of our securities by us and our officers,
directors and employees that are reasonably designed to promote compliance with insider trading laws, rules and regulations, and all
listing standards applicable to us. Each of our executive officers, directors and employees is required to read and sign our insider
trading policy. A copy of our insider trading policy is attached hereto as Exhibit 19.1.
Under
the policy, directors, executive officers, employees and other related persons may not: (i) buy, sell or engage in other transactions
in our shares of common stock while they are aware of material non-public information; (ii) buy or sell securities of other companies
while aware of material non-public information about those companies that they became aware of as a result of business dealings between
us and those companies; or (iii) disclose material non-public information to any unauthorized persons outside of us. The policy restricts
trading and other transactions for a limited group of our employees (including executives and directors) to defined window periods that
follow our quarterly and annual earnings releases. Additionally, our executive management will also issue notices of black-out trading
periods if they are aware of material transactions that they anticipate closing in the near future.
****
**Item
11. Executive Compensation.**
**Summary
Compensation Table**
****
The
following table provides information regarding the compensation earned by or paid to our named executive officers during our fiscal years
ended December 31, 2025 and 2024.
| 
Name and Principal Position | | 
Year / Period | | 
Salary 
($) | | | 
Bonus 
($) | | | 
Stock
Awards
($) (1) | | | 
Option
Awards
($) (1) | | | 
All Other
Compensation
($) (2) | | | 
Total 
($) | | |
| 
Gary Atkison | | 
2025 | | 
| 215,000 | | | 
| 132,500 | | | 
| -0- | | | 
| -0- | | | 
| 5,800 | | | 
| 353,300 | | |
| 
Chief Executive Officer | | 
2024 | | 
| 215,000 | | | 
| 32,250 | | | 
| -0- | | | 
| -0- | | | 
| 6,285 | | | 
| 253,535 | | |
| 
Alex Andre (3) | | 
2025 | | 
| 244,000 | | | 
| -0- | | | 
| 66,000 | | | 
| 66,000 | | | 
| 6,200 | | | 
| 382,200 | | |
| 
Chief Financial Officer & General Counsel | | 
| | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | |
| 
Richard Perez (4) | | 
2025 | | 
| 27,000 | | | 
| 44,000 | | | 
| -0- | | | 
| -0- | | | 
| -0- | | | 
| 71,000 | | |
| 
Chief Financial Officer | | 
2024 | | 
| 174,596 | | | 
| -0- | | | 
| -0- | | | 
| -0- | | | 
| -0- | | | 
| 174,596 | | |
| 
Bernardo Melo (5) | | 
2025 | | 
| 124,000 | | | 
| 221,000 | | | 
| -0- | | | 
| -0- | | | 
| 5,800 | | | 
| 350,800 | | |
| 
Chief Revenue Officer | | 
2024 | | 
| 215,000 | | | 
| 57,552 | | | 
| -0- | | | 
| -0- | | | 
| 10,902 | | | 
| 283,454 | | |
| 
(1) | 
Represents
the grant date fair value of the awards calculated in accordance with ASC Topic 718, Compensation Stock Compensation.
A summary of the assumptions made in the valuation of these awards is provided in our consolidated financial statements beginning
on page F-1 of this report. | |
| 
| 
| |
| 
(2) | 
Consists
of 401(k) matching contributions that we made during the respective years. | |
| 
| 
| |
| 
(3) | 
Mr.
Andre was appointed as our Chief Financial Officer and General Counsel on February 13, 2025. | |
| 
| 
| |
| 
(4) | 
Mr.
Perez was appointed as our Chief Financial Officer on January 3, 2024 and was terminated as our Chief Financial Officer on February
13, 2025. | |
| 
| 
| |
| 
(5) | 
Mr.
Melo was terminated as our Chief Revenue Officer effective August 1, 2025. | |
****
| 59 | |
****
**Outstanding
Option and Stock Awards**
The
following table sets forth information with respect to outstanding grants of options to purchase our common stock under stock option
awards issued to the named executive officers as of December 31, 2025:
| 
Name | | 
Number of Securities Underlying Unexercised Options (#) Exercisable | | | 
Number of Securities Underlying Unexercised Options (#) Unexercisable | | | 
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | 
Option Exercise Price ($) | | | 
Option Expiration Date | | 
Number of Shares or Units of Stock That Have Not Vested (#) | | | 
Market Value of Shares or Units of Stock That Have Not Vested ($) | | 
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | 
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | | |
| 
Gary Atkinson | | 
| 8 | | | 
| -0- | | | 
N/A | | 
| 1,440 | | | 
3/31/26 | | 
| N/A | | | 
N/A | | 
N/A | | 
| N/A | | |
| 
| | 
| 17 | | | 
| -0- | | | 
N/A | | 
| 2,820 | | | 
5/3/27 | | 
| N/A | | | 
N/A | | 
N/A | | 
| N/A | | |
| 
| | 
| 67 | | | 
| -0- | | | 
N/A | | 
| 800 | | | 
5/24/32 | | 
| N/A | | | 
N/A | | 
N/A | | 
| N/A | | |
| 
| | 
| 8 | | | 
| -0- | | | 
N/A | | 
| 1,730 | | | 
8/16/32 | | 
| N/A | | | 
N/A | | 
N/A | | 
| N/A | | |
| 
| | 
| | | | 
| | | | 
| | 
| | | | 
| | 
| | | | 
| | 
| | 
| | | |
| 
Alex Andre | | 
| 23,818 | | | 
| -0- | | | 
N/A | | 
$ | 2.78 | | | 
2/13/35 | | 
| 23,818 | | | 
N/A | | 
N/A | | 
$ | 24,056 | | |
| 
| | 
| | | | 
| | | | 
| | 
| | | | 
| | 
| | | | 
| | 
| | 
| | | |
| 
Lionel Marquis | | 
| 3 | | | 
| -0- | | | 
N/A | | 
| 1,440 | | | 
3/31/26 | | 
| N/A | | | 
N/A | | 
N/A | | 
| N/A | | |
| 
| | 
| 8 | | | 
| -0- | | | 
N/A | | 
| 2,820 | | | 
5/3/27 | | 
| N/A | | | 
N/A | | 
N/A | | 
| N/A | | |
| 
| | 
| 50 | | | 
| -0- | | | 
N/A | | 
| 800 | | | 
5/24/32 | | 
| N/A | | | 
N/A | | 
N/A | | 
| N/A | | |
| 
| | 
| 5 | | | 
| -0- | | | 
N/A | | 
| 1,730 | | | 
8/16/32 | | 
| N/A | | | 
N/A | | 
N/A | | 
| N/A | | |
| 
| | 
| | | | 
| | | | 
| | 
| | | | 
| | 
| | | | 
| | 
| | 
| | | |
| 
Bernardo Melo | | 
| 4 | | | 
| -0- | | | 
N/A | | 
| 1,020 | | | 
6/30/25 | | 
| N/A | | | 
N/A | | 
N/A | | 
| N/A | | |
| 
| | 
| 17 | | | 
| -0- | | | 
N/A | | 
| 1,920 | | | 
8/10/26 | | 
| N/A | | | 
N/A | | 
N/A | | 
| N/A | | |
| 
| | 
| 33 | | | 
| -0- | | | 
N/A | | 
| 2,820 | | | 
5/3/27 | | 
| N/A | | | 
N/A | | 
N/A | | 
| N/A | | |
| 
| | 
| 8 | | | 
| -0- | | | 
N/A | | 
| 1,320 | | | 
12/25/31 | | 
| N/A | | | 
N/A | | 
N/A | | 
| N/A | | |
| 
| | 
| 50 | | | 
| -0- | | | 
N/A | | 
| 800 | | | 
5/24/32 | | 
| N/A | | | 
N/A | | 
N/A | | 
| N/A | | |
| 
| | 
| 5 | | | 
| -0- | | | 
N/A | | 
| 1,730 | | | 
8/16/32 | | 
| N/A | | | 
N/A | | 
N/A | | 
| N/A | | |
****
| 60 | |
****
**Employment
Agreements**
Effective
April 22, 2022, we entered into employment agreements with Gary Atkinson to serve as our Chief Executive Officer and Bernardo Melo to
serve as our Chief Revenue Officer. The agreements are for a term of three years with automatic renewals for successive one-year terms,
unless either party provides notice of its intention not to extend. As compensation for their service as executives, the executives will
each receive: (i) a base salary per annum of $215,000 that automatically increases to $225,000 on the first anniversary of the effective
date; (ii) eligibility to earn an annual bonus; and (iii) eligibility to participate in our 2022 Equity Incentive Plan, or any successor
plan.
In
the event the employment of the executives is terminated by us without Cause or by the executives for Good Reason
(as each such defined in the employment agreements), Messrs. Atkinson and Melo will receive severance in a lump sum payment equal to
two times the sum of the executives base salary and annual bonus for the year in which the termination occurs. The employment
agreements also provide for payments to the executive of certain amounts in the event of the executives death or disability (as
defined in the employment agreements).
Mr.
Melo was terminated as our Chief Revenue Officer effective August 1, 2025.
Effective
February 13, 2025, we entered into an employment agreement with Alex Andre to serve as our Chief Financial Officer and General Counsel.
The agreement is for a term of three years with automatic renewals for successive one-year terms, unless either party provides at least
90 days notice of its intention not to extend.
Under
the terms of the agreement, we agreed to pay Mr. Andre an annual base salary of $275,000 which automatically increases to $300,000 on
the six-month anniversary of the effective date. Mr. Andre is eligible to receive an annual bonus of up to 30% of his annual base salary.
Mr. Andre received a non-qualified stock option to purchase 23,818 shares of our common stock and a restricted stock award for 23,818
shares of our common stock on February 13, 2025. The option has a ten-year term, subject to any earlier termination following cessation
of Mr. Andres service with us, and an exercise price per share equal to the closing price of our common stock as reported by the
Nasdaq on February 13, 2025. The restricted stock award and option vest over four years as follows: (a) 25% of the shares underlying
the restricted stock award and option shall vest on the first anniversary of the grant date; and (b) six and one-quarter percent (6.25%)
of the shares underlying the restricted stock award and option shall vest each quarter thereafter, subject to Mr. Andres continued
service with us through each applicable vesting date.
On
February 23, 2026, we entered into an amended and restated employment agreement with Gary Atkinson to continue serving as our Chief Executive
Officer. The agreement supersedes and replaces the employment agreement that we entered into with Mr. Atkinson on April 22, 2022. The
agreement is for a term of three years with automatic renewals for successive one-year terms, unless either party provides at least 90
days notice of its intention not to extend.
Under
the terms of the agreement, we agreed to pay Mr. Atkinson an annual a base salary of $360,000 per year. Mr. Atkinson has the right to
earn an annual bonus of up to 50% of the base salary, of which amount 50% will be subject to his continued employment with us and the
remaining 50% will be subject to the satisfaction of certain performance objectives. Mr. Atkinson also has the right to receive a bonus
if, and each time, a change of control occurs during the term of his employment in a lump sum payment equal to his base salary and annual
bonus for the year in which the change of control occurs.
| 61 | |
Pursuant
to the terms of the Agreement, on February 23, 2026, we granted Mr. Atkinson a stock option to purchase 740,597 shares of our common
stock under the 2022 Plan. The stock option has an exercise price per share of $1.84 and vests in equal quarterly installments over a
period of four years commencing on February 23, 2026.
**Executive
Bonus Plan**
On
April 22, 2022, our Board of Directors approved a bonus plan for our executive officers. Under the plan, our executive officers are eligible
to receive a cash bonus, stock options, and stock grants based on our earnings before interest, taxes, depreciation and amortization
(EBITDA) for the applicable fiscal year. The value of the cash bonus and number of shares of stock underlying stock options
and stock grants increases as the ratio of EBITDA to net sales increases.
****
**Director
Compensation**
The
following table sets forth all compensation earned or paid to our directors who served during all or a portion of the year ended December
31, 2025.
| 
Name | | 
Fees Earned 
or Paid in 
Cash ($) | | | 
Stock 
Awards ($) (1) | | | 
Option 
Awards ($) (1) | | | 
Total ($) | | |
| 
Harvey Judkowitz | | 
| 34,250 | | | 
| 21,000 | | | 
| 25,000 | | | 
| 80,250 | | |
| 
Gary Atkinson | | 
| -0- | | | 
| -0- | | | 
| -0- | | | 
| 0 | | |
| 
Ajesh Kapoor (2) | | 
| -0- | | | 
| -0- | | | 
| -0- | | | 
| 0 | | |
| 
Bernardo Melo | | 
| -0- | | | 
| 42,000 | | | 
| 25,000 | | | 
| 67,000 | | |
| 
Scott Thorn (3) | | 
| 9,750 | | | 
| 42,000 | | | 
| 25,000 | | | 
| 76,750 | | |
| 
Kapil Gupta (3) | | 
| 9,250 | | | 
| 42,000 | | | 
| 25,000 | | | 
| 76,250 | | |
| 
Mathieu Peloquin (3) | | 
| 19,000 | | | 
| -0- | | | 
| -0- | | | 
| 19,000 | | |
| 
Jay Foreman (4) | | 
| 20,500 | | | 
| -0- | | | 
| -0- | | | 
| 20,500 | | |
| 
Joe Kling (5) | | 
| 19,500 | | | 
| -0- | | | 
| -0- | | | 
| 19,500 | | |
| 
(1) | 
Represents
the grant date fair value of the awards calculated in accordance with ASC Topic 718, Compensation Stock Compensation.
A summary of the assumptions made in the valuation of these awards is provided in our consolidated financial statements beginning
on page F-1 of this report. | |
| 
| 
| |
| 
(2) | 
Mr.
Kapoor was appointed to our board of directors on May 19, 2025. | |
| 
| 
| |
| 
(3) | 
Messrs.
Thorn and Gupta were appointed to our board of directors on October 6, 2025, and Mr. Peloquin resigned from our board of directors
on October 6, 2025. | |
| 
| 
| |
| 
(4) | 
Mr.
Foreman resigned from our board of directors on November 14, 2025. | |
| 
| 
| |
| 
(5) | 
Mr.
Kling resigned from our board of directors on August 21, 2025. | |
| 62 | |
Prior
to May 28, 2025, we compensated the non-employee members of our board of directors as follows:
| 
| 
| 
An
annual cash payment of $15,000 for each completed full year of service or prorated for a partial year. | |
| 
| 
| 
| |
| 
| 
| 
An
annual stock grant of stock equivalent in value to $10,000 for each completed full year of service or prorated for a partial year.
The stock price at grant will be determined at the closing price on the day of the annual stockholder meeting. | |
| 
| 
| 
| |
| 
| 
| 
A
$1,000 fee for each board meeting and annual meeting attended. Committee meetings and telephone board meetings will be compensated
for with a $500 fee. | |
| 
| 
| 
| |
| 
| 
| 
All
expenses are reimbursed for attending board, committee and annual meetings or when their presence at a location away from home is
requested. | |
On
May 28, 2025, our board of directors approved a new director compensation policy pursuant to which we compensate the non-employee members
of our board of directors as follows:
| 
| 
| 
An
annual cash retainer of $25,000, payable in quarterly installments on the first day of each quarter in advance of service for such quarter. | |
| 
| 
| 
| |
| 
| 
| 
An annual grant of a restricted stock award with a value at the time of issuance of $25,000. | |
| 
| 
| 
| |
| 
| 
| 
An annual grant of a stock option with a value at the time of issuance of $25,000. | |
| 
| 
| 
| |
| 
| 
| 
An annual cash retainer of $5,000 for each committee of the board of directors upon which the board member serves, payable in quarterly
installments on the first day of each quarter in advance of service for such quarter. | |
| 
| 
| 
| |
| 
| 
| 
An initial grant of a stock option with a value at the time of issuance of $25,000 for each individual who becomes a non-employee
director due to either: (i) the initial appointment or election to the board of directors, or (ii) a change in status that the board
of directors determines results in a previously ineligible director qualifying as a non-employee director. | |
| 
| 
| 
| |
| 
| 
| 
All expenses are reimbursed for attending board, committee and annual meetings or when their presence at a location away from home
is requested. | |
On
February 23, 2026, our board of directors amended the director compensation policy to provide that, with respect to the annual grants
of a restricted stock award and a stock option each having a value at the time of issuance of $25,000, non-employee directors would instead
be given an annual grant of equity having a value at the time of issuance of $50,000 and that they would have the right to choose what
amount, if any, they would like to receive in the form of a restricted stock award and/or a stock option.
| 63 | |
**401(k)
Plan**
Effective
January 1, 2001, we adopted a voluntary 401(k) plan. All employees with at least 90 days of service are eligible to participate in our
401(k) plan. We make a matching contribution of 100% of the first three percent of salary deferral contributions, plus 50% of the next
two percent of salary deferral contributions, for each payroll period. The matching contributions that we make are vested in full immediately.
**Clawback
Policy**
Our
Board has adopted a clawback policy relating to recovery of erroneously awarded compensation that complies with the Nasdaq clawback rules
which are required by SEC Rule 10D-1. Under this policy, in the event that we are required to prepare an accounting restatement of our
financial statements due to our material noncompliance with any financial reporting requirement under the securities laws, the policy
requires that the administrator of the policy, to the extent legally permitted and pursuant to the terms of the policy, recover from
current and former Section 16 officers any incentive-based compensation, as defined in Nasdaqs clawback rules, received by such
officers that exceeds the amount of incentive-based compensation that otherwise would have been received had such incentive based compensation
been determined according to the applicable accounting restatement. A copy of our clawback policy is attached hereto as Exhibit 97.
****
**Policies
and Practices related to the Grant of Certain Equity Awards Close in Time to the Release of Material Nonpublic Information**
We
have a strict policy of not granting securities to our executive officers, directors and employees when material nonpublic information
is known or a material transaction is anticipated to occur.
The
timing of equity award grants is determined with consideration to a variety of factors, including but not limited to, the achievement
of pre-established performance targets, market conditions and internal milestones. We do not follow a predetermined schedule for the
granting of equity awards. Instead, each grant is considered on a case-by-case basis to align with our strategic objectives and to ensure
the competitiveness of our compensation packages.
In
determining the timing and terms of an equity award, our board of directors and compensation committee consider material nonpublic information
to ensure that such grants are made in compliance with applicable laws and regulations. Procedures utilized by our board of directors
and compensation committee to prevent the improper use of material nonpublic information in connection with the granting of equity awards
include consultation with legal counsel and, where appropriate, the delay of the grant of applicable equity awards until the public disclosure
of such material nonpublic information has been completed.
We
are committed to maintaining transparency in our executive compensation practices and to making equity awards in a manner that is not
influenced by the timing of the disclosure of material nonpublic information for the purpose of affecting the value of executive compensation.
We regularly review our policies and practices related to equity awards to ensure that they meet the evolving standards of corporate
governance and continue to serve the best interests of us and our stockholders.
| 64 | |
During
the year ended December 31, 2025, no securities were granted to our named executive officers within four business days prior to, or one
business day following, the filing or furnishing of a periodic or current report by us that disclosed material nonpublic information.
**Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.**
****
The
following table and the notes thereto set forth, as of March 27, 2026, certain information with respect to the beneficial ownership of:
(i) each of our named executive officers, (ii) each of our directors, (iii) each of our named executive officers and directors as a group,
and (iv) each person or group that is known to us to be the beneficial owner of more than five percent of our common stock. This table
is based upon information supplied by our officers, directors and principal stockholders and Schedules 13D and 13G filed with the SEC.
Where information regarding stockholders is based on Schedules 13D and 13G, the number of shares owned is as of the date for which information
was provided in such schedules.
The
beneficial owners and number of securities beneficially owned have been determined in accordance with Rule 13d-3 under the Exchange Act
and, in accordance therewith, includes all shares of our common stock that may be acquired by such beneficial owners within 60 days of
March 27, 2026 upon the exercise or conversion of any options, warrants or other convertible securities. Unless otherwise indicated and
subject to community property laws where applicable, we believe that each person or entity named below has sole voting and investment
power with respect to the shares of common stock indicated as beneficially owned by that person or entity, subject to the matters set
forth in the footnotes to the table below, and has an address of c/o Algorhythm Holdings, Inc., 6301 NW 5th Way, Suite 2900,
Fort Lauderdale, FL 33309.
| 
Name
and Address of Beneficial Owner | | 
Amount and Nature of Beneficial Ownership
(1) | | | 
Percentage of
Class | | |
| 
Gary Atkinson (2) | | 
| 46,447 | | | 
| * | | |
| 
Alex Andre (3) | | 
| 45,873 | | | 
| * | | |
| 
Bernardo Melo (4) | | 
| 29,635 | | | 
| * | | |
| 
Harvey Judkowitz (5) | | 
| 31,156 | | | 
| * | | |
| 
Ajesh Kapoor | | 
| 128,762 | | | 
| * | | |
| 
Scott Thorn (6) | | 
| 29,298 | | | 
| * | | |
| 
Kapil Gupta (7) | | 
| 29,298 | | | 
| * | | |
| 
All officers and directors as a group (7 persons) | | 
| 340,469 | | | 
| 2.3 | % | |
*
Less than one percent.
(1)
This table has been prepared based on 14,651,665 shares of our common stock outstanding on March 27, 2026.
(2)
Includes 46,388 shares of common stock underlying stock options issued under the 2022 Plan.
| 65 | |
(3)
Includes a restricted stock award for 23,818 shares of common stock for which Mr. Andre holds the voting rights and 22,055 shares of
common stock underlying stock options, all of which were issued under the 2022 Plan.
(4)
Includes a restricted stock award for 9,766 shares of common stock for which Mr. Melo holds the voting rights and 19,768 shares of common
stock underlying stock options, all of which were issued under the 2022 Plan.
(5)
Includes a restricted stock award for 9,766 shares of common stock for which Mr. Judkowitz holds the voting rights and 9,795 shares of
common stock underlying stock options, all of which were issued under the 2022 Plan.
(6)
Includes a restricted stock award for 9,766 shares of common stock for which Mr. Thorn holds the voting rights and 19,532 shares of common
stock underlying stock options, all of which were issued under the 2022 Plan.
(7)
Includes a restricted stock award for 9,766 shares of common stock for which Mr. Gupta holds the voting rights and 19,532 shares of common
stock underlying stock options, all of which were issued under the 2022 Plan.
****
**2022
Equity Incentive Plan**
On
April 12, 2022, our board of directors approved The Singing Machine Company, Inc. 2022 Equity Incentive Plan. The plan provides for the
issuance of equity incentive awards, such as stock options, stock appreciation rights, stock awards, restricted stock, stock units, performance
awards and other stock or cash-based awards, to our employees, officers, directors, consultants, agents, advisors, and independent contractors.
The
number of shares of common stock that was initially available for issuance under the plan was 1,167 shares of common stock. On the first
day of each of our fiscal years thereafter, this number is increased by the lesser of: (i) five percent of the number of shares of our
common stock that were outstanding on the last day of our immediately preceding fiscal year, calculated on a fully diluted, (ii) 167
shares, and (iii) such lesser number as our board of directors may determine. Any shares of common stock underlying awards that lapse,
terminate, expire prior to exercise, are canceled or are forfeited are added to the number of shares of commons stock available for issuance
under the plan.
On
November 20, 2025, the plan was amended to provide that the number of shares of common stock available for issuance under the plan is
5,000,000 and that, commencing January 1, 2025, on the first day of each of our fiscal years thereafter, this number will be increased
by the lesser of: (i) 15% of the outstanding common stock on a fully diluted basis as of the end of our immediately preceding fiscal
year, or (ii) an amount determined by the board of directors, provided that any shares from any such increases in previous years that
are not actually issued shall continue to be available for issuance under the plan.
Accordingly,
as of December 31, 2025, there were 5,000,000 shares of common stock authorized for issuance under the plan. Of this amount, awards representing
283,666 shares of common stock were outstanding as of December 31, 2025 and 4,716,334 shares remained available for issuance as of December
31, 2025. On January 1, 2026, the number of shares available for issuance under the plan increased to 5,750,000 in accordance with the
terms of the plan.
| 66 | |
The
following table summarizes our equity compensation plan information as of December 31, 2025.
| 
Plan Category | | 
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights (a) | | | 
Weighted- average exercise
price of
outstanding
options, warrants
and rights (b) | | | 
Number of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column 
(a)) (c) | | |
| 
Equity compensation plans approved by security holders: | | 
| 1,319,229 | | | 
$ | 10 | | | 
| 4,716,334 | | |
| 
Equity compensation plans not approved by security holders: | | 
| N/A | | | 
| N/A | | | 
| N/A | | |
| 
Total | | 
| 1,319,229 | | | 
$ | 10 | | | 
| 4,716,334 | | |
****
**Item
13. Certain Relationships and Related Transactions, and Director Independence.**
****
A
transaction may be a related person transaction if any of our directors, executive officers, owners of more than five percent of our
common stock, or their immediate family were involved in a transaction in which we were or are to be a participant, and the amount involved
exceeds the lesser of $120,000 or one percent of the average of our total assets at the end of our last two completed fiscal years. We
engaged in the following related persons transactions since the beginning of our last fiscal year.
**Regalia
Ventures Stock Transactions**
On
November 20, 2023, we entered into a stock purchase agreement with Regalia Ventures pursuant to which we sold 5,495 shares of our common
stock to Regalia Ventures at a purchase price of $182 per share. Net proceeds from the transaction were approximately $950,000, net of
transaction fees of approximately $50,000. On November 1, 2024, we entered into a stock repurchase agreement with Regalia Ventures pursuant
to which we agreed to repurchase the 5,495 shares for $472,527. On February 18, 2025, the date of the closing of the transaction, we
issued a promissory note to Regalia Ventures in the amount of $472,527. On February 27, 2025, we paid off the note in full. Regalia Ventures
is owned and controlled by Jay B. Foreman, who served as a member of our board of directors until November
14, 2025.
**Stingray
Group Stock Transactions**
On
November 20, 2023, we entered into a stock purchase agreement with Stingray Group pursuant to which we sold 5,495 shares of our common
stock to Stingray Group at a purchase price of $182 per share. Net proceeds from the transaction were approximately $950,000, net of
transaction fees of approximately $50,000. On December 3, 2024, we entered into a stock repurchase agreement with Stingray Group pursuant
to which we agreed to repurchase the 5,495 shares for $285,714. We agreed to issue a promissory note to Stingray Group in the principal
amount of the purchase price of the shares at the closing of the transaction. On February 18, 2025, the date of the closing of the transaction,
we issued a promissory note to Stingray Group in the amount of $285,714. On April 3, 2025, we paid off the note in full. Mathieu Peloquin
is the Senior Vice-President, Marketing and Communications of Stingray Group and served as a member of our board of directors until October
6, 2025.
| 67 | |
**Stingray
Holdings Music Subscription Agreement**
We
have a music subscription sharing agreement with Stingray Group under which we generated music subscription revenue of $64,000 and $780,000
during the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, we had $0 and $212,000, respectively,
due from Stingray Group for music subscription reimbursement. Mathieu Peloquin is the Senior Vice-President, Marketing and Communications
of Stingray Group and served as a member of our board of directors until October
6, 2025. This revenue was included in net loss from discontinued operations on our consolidated
statements of operations for the years ended December 31, 2025 and 2024, and the accounts receivable was included in current assets of
discontinued operations in our consolidated balance sheets as of December 31, 2024.
**SMCB**
*VIE
Analysis*
We
determined that SMCB, which was a subsidiary of SemiCab, Inc. until SemiCab Holdings acquired it on May 2, 2025, was a VIE as we provided
financial support to SMCB. While not contractually obligated, SMCB relied on our reimbursement of certain costs under a intercompany
services agreement (MSA) whereby SMCB agreed to provide IT software development services to us. In exchange, under the
MSA, we granted intellectual property rights to SMCB to use the software platform in India. Compensation for services is invoiced and
paid on a monthly or quarterly basis as agreed by both parties, with rates subject to periodic review and revision. The agreement is
for a term of two years ending on April 1, 2025 and automatically renews for additional 12-month periods unless prior notice is given
by the terminating party. The agreement automatically renewed for an additional 12-month period on April 1, 2025. As a result of this
relationship and the financial support provided by us under the loan agreement described below, SMCB has been determined to be a VIE
prior to May 2, 2025.
We
further determined that were are not the primary beneficiary of SMCB because we did not have the power to direct or control SMCBs
significant activities related to its business prior to May 2, 2025. Accordingly, we have not consolidated SMCBs results of operations
and financial position prior to May 2, 2025 in our consolidated financial statements.
Pursuant
to the terms of the asset purchase agreement that we entered into on June 11, 2024, we entered into an option agreement that granted
SemiCab Holdings the right to acquire all of the issued and outstanding equity securities of SMCB for 1,605 shares of our common stock.
We did not exercise this right and the option agreement expired on August 31, 2024.
| 68 | |
*Loan
Agreement*
We
are a party to a loan agreement with SMCB dated March 22, 2024. Under the loan agreement, we agreed to loan up to $2,500,000 to SMCB.
The loans are anticipated to be made in tranches. Disbursements of any tranches are fully at our discretion. Each tranche has a repayment
period of five years. The loans can be repaid at any time prior to the five- year maturity date without penalty. Interest on the loans
accrues at a rate of six percent per year and is payable quarterly.
At
December 31, 2024, a total of $1,140,000 was outstanding under the loan agreement. During the period beginning January 1, 2025 and ending
May 2, 2025, the date we acquired 99.99% of the equity shares of SMCB, we made advances to SMCB in the amount of $1,172,000. During the
same period, SMCB charged $304,000 for services to us that were performed under the MSA, which charges offset amounts due under the loan
with SMCB. As a result, as of May 2, 2025, a total of $2,008,000 of loans were outstanding under the loan agreement, and a total of $492,000
remained available for future borrowings under the loan agreement as of May 2, 2025. As of May 2, 2025, SMCB had not made any interest
payments due under the loan agreement. As a result, the loans were in default as of May 2, 2025.
On
May 2, 2025, the loan payable of $2,008,000 of SMCB and our loan receivable of $2,008,000 were eliminated in consolidation. As a result,
no such loans payable and loans receivable were outstanding on our condensed consolidated balance sheet at June 30, 2025. Also on May
2, 2025, revenue generated by SMCB for services performed by SMCB under the MSA of $304,000 and expenses for us for services performed
by SMCB under the MSA of $304,000 during the period commencing January 1, 2025 and ending May 2, 2025 were eliminated in consolidation
on May 2, 2025. As a result, no such revenue and expenses were reflected on our consolidated statements of operations for the years ended
December 31, 2025 and 2024.
**Sale
of Singing Machine to Stingray USA**
On
August 1, 2025, we entered into an asset purchase agreement with Stingray USA, a related party and subsidiary of the Stingray Group,
pursuant to which Stingray USA purchased substantially all of the assets, and assumed most of the liabilities, associated with our Singing
Machine business for $500,000. The transaction closed on August 1, 2025. Mathieu Peloquin is the
Senior Vice-President, Marketing and Communications of Stingray Group and served as a member of our board of directors until October
6, 2025. The gain on sale that we recognized in connection with the completion of this transaction
was included in net gain (loss) from discontinued operations on our consolidated statements of operations for the years ended
December 31, 2025 and 2024.
| 69 | |
**Review,
Approval or Ratification of Transactions With Related Persons**
We
believe that the terms of all of our transactions with related parties are commercially reasonable and no less favorable to us than we
could have obtained from an unaffiliated third party. Our audit committee is charged with the responsibility to review, approve and oversee
any transaction between us and any related parties and to develop policies and procedures for the audit committees approval of
related-party transactions. While we do not maintain a formal written policy with respect to related-party transactions, our audit committee
and board of directors routinely review potential transactions that we have identified as related parties prior to the consummation of
the transaction to ensure that the transaction is commercially reasonable and reflects market terms. Each transaction is reviewed to
determine that a related party transaction is entered into by us with the related party pursuant to normal competitive negotiation and
on terms no more favorable than with an unrelated third party. We also generally require, unless prohibited by law, that all related
parties recuse themselves from negotiating and voting on behalf of us in connection with proposed transactions to which they would be
a party.
**Item
14. Principal Accountant Fees and Services.**
**Fees
and Services**
M&K CPAs PLLC has served as our independent registered public accounting
firm since October 6, 2025. Berkowitz Pollack Brant, Advisors + CPAs served as our independent registered public accounting firm for the
period commencing June 2, 2025, and ending October 6, 2025. CBIZ CPAs P.C. served as our independent registered public accounting firm
for the period commencing April 25, 2025, and ending June 2, 2025. Marcum LLP served as our independent registered public accounting firm
for the year ended December 31, 2024 and continuing through April 25, 2025. We paid audit fees of $32,000 to M&K CPAS PLLC for services
performed during the year ended December 31, 2025. We paid audit fees of $25,000 to Berkowitz Pollack Brant, Advisors + CPAs for services
performed during the year ended December 31, 2025. We paid audit fees of $37,000 to CBIZ CPAs P.C. for services performed during the year
ended December 31, 2025. We paid audit fees of $50,000 and $483,000 to Marcum LLP for services performed during the years ended December
31, 2025 and 2024, respectively.
| 
Fees | | 
2025 | | | 
2024 | | |
| 
Audit fees | | 
$ | 144,000 | | | 
$ | 483,000 | | |
| 
Audit-related fees | | 
| -0- | | | 
| -0- | | |
| 
Tax fees | | 
| -0- | | | 
| -0- | | |
| 
All other fees | | 
| -0- | | | 
| -0- | | |
| 
Total fees | | 
$ | 144,000 | | | 
$ | 483,000 | | |
Audit
fees consist of fees billed for professional services rendered by our independent registered public accounting firm for the audit of
our annual consolidated financial statements, the review of our interim consolidated financial statements included in our quarterly reports,
the review of our registration statements and services that are normally provided by our principal accountant in connection with statutory
and regulatory filings or engagements.
**Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors**
Our
Audit Committees policy is to pre-approve all audit and permissible non-audit services provided by the independent registered
public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval
is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is
generally subject to a specific budget. Our auditors and management are required to periodically report to the Audit Committee regarding
the extent of services provided by the auditors in accordance with this pre-approval and the fees for the services performed to date.
The Audit Committee may also pre-approve particular services on a case-by-case basis.
| 70 | |
****
**PART
IV**
****
**Item
15. Exhibits, Financial Statement Schedules.**
****
**Financial
Statements**
****
The
following consolidated financial statements and reports of our independent registered public accounting firms are filed as part of this
report and incorporated by reference in *Item 8. Financial Statements and Supplementary Data* of this report:
| 
| 
| 
Report of Independent Registered Public Accounting Firm (PCAOB ID: 2738). | |
| 
| 
| 
| |
| 
| 
| 
Report of Independent Registered Public Accounting Firm (PCAOB ID: 688). | |
| 
| 
| 
| |
| 
| 
| 
Consolidated Balance Sheets at December 31, 2025 and 2024. | |
| 
| 
| 
| |
| 
| 
| 
Consolidated Statements of Operations for the Years Ended December 31, 2025 and 2024. | |
| 
| 
| 
| |
| 
| 
| 
Consolidated Statements of Stockholders Deficit for the Years Ended December 31, 2025 and 2024. | |
| 
| 
| 
| |
| 
| 
| 
Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024. | |
| 
| 
| 
| |
| 
| 
| 
Notes to Consolidated Financial Statements. | |
****
**Financial
Statement Schedules**
All
financial statement schedules have been omitted because the required information is either not applicable or has been presented in the
consolidated financial statements.
| 71 | |
**Exhibits**
The
documents set forth below are filed as exhibits to this report. Where so indicated, exhibits that were previously filed with the SEC
are incorporated by reference herein.
| 
Exhibit
No. | 
| 
Description | |
| 
| 
| 
| |
| 
2.1 | 
| 
Asset
Purchase Agreement, dated June 11, 2024, by and among Algorhythm Holdings, Inc., SemiCab, Inc. and SemiCab Holdings, LLC
(incorporated by reference to Exhibit 2.1 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on June
12, 2024). | |
| 
| 
| 
| |
| 
2.2 | 
| 
Amendment
No. 1 to Asset Purchase Agreement dated July 1, 2024, by and among Algorhythm Holdings, Inc., SemiCab, Inc. and SemiCab Holdings LLC
(incorporated by reference to Exhibit 2.2 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on July
5, 2024). | |
| 
| 
| 
| |
| 
3.1 | 
| 
Certificate of Incorporation of Algorhythm Holdings, Inc. filed with the Delaware Secretary of State on February 15, 1994 and amendments through April 14, 1999 (incorporated by reference to Exhibit 3.1 in Algorhythm Holdings, Inc.s Registration Statement on Form SB-2 filed with the SEC on March 7, 2000). | |
| 
| 
| 
| |
| 
3.2 | 
| 
Certificate
of Amendment to Certificate of Incorporation of Algorhythm Holdings, Inc. filed with the Delaware Secretary of State on September
29, 2000 (incorporated by reference to Exhibit 3.1 in Algorhythm Holdings, Inc.s Quarterly Report on Form 10-QSB for the period
ended September 30, 1999 filed with the SEC on November 14, 2000). | |
| 
| 
| 
| |
| 
3.3 | 
| 
Corrected
Certificate of Amendment to Certificate of Incorporation of Algorhythm Holdings, Inc. filed with the Delaware Secretary of State on
March 27, 2001 (incorporated by reference to Exhibit 3.13 in Algorhythm Holdings, Inc.s Registration Statement on Form SB-2 filed
with the SEC on April 11, 2001). | |
| 
| 
| 
| |
| 
3.4 | 
| 
Corrected
Certificate of Amendment to Certificate of Incorporation of Algorhythm Holdings, Inc. filed with the Delaware Secretary of State on
April 4, 2001 (incorporated by referenced to Exhibit 3.12 in Algorhythm Holdings, Inc.s Registration Statement on Form SB-2 filed
with the SEC on April 11, 2001). | |
| 
| 
| 
| |
| 
3.5 | 
| 
Certificate
of Correction to Corrected Certificate of Amendment to Certificate of Incorporation of Algorhythm Holdings, Inc. filed with the
Delaware Secretary of State on April 20, 2001 (incorporated by reference to Algorhythm Holdings, Inc.s Transition Report on Form
10-KT filed with the SEC on July 14, 2022). | |
| 
| 
| 
| |
| 
3.6 | 
| 
Certificate
of Amendment to the Certificate of Incorporation of Algorhythm Holdings, Inc. filed with the Delaware Secretary of State on January
27, 2006 (incorporated by reference to Algorhythm Holdings, Inc.s Transition Report on Form 10-KT filed with the SEC on July 14,
2022). | |
| 
| 
| 
| |
| 
3.7 | 
| 
Certificate
for Renewal and Revival of Charter of Algorhythm Holdings, Inc. filed with Delaware Secretary of State on September 25, 2012
(incorporated by reference to Algorhythm Holdings, Inc.s Transition Report on Form 10-KT filed with the SEC on July 14,
2022). | |
| 
| 
| 
| |
| 
3.8 | 
| 
Certificate
of Amendment of Certificate of Incorporation of Algorhythm Holdings, Inc. filed with the Delaware Secretary of State on May 19, 2022
(incorporated by reference to Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on May 25,
2022). | |
| 
| 
| 
| |
| 
3.9 | 
| 
Amended By-Laws of Algorhythm Holdings, Inc. (incorporated by reference to Exhibit 3.14 in Algorhythm Holdings, Inc.s Transition Report on Form 10-KTSB for the year ended March 31, 2001 filed with the SEC on June 29, 2001). | |
| 72 | |
| 
3.10 | 
| 
Certificate
of Amendment of Certificate of Incorporation of Algorhythm Holdings, Inc. dated August 27, 2024 (incorporated by reference to
Exhibit 3.1 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on September 6, 2024). | |
| 
| 
| 
| |
| 
3.11 | 
| 
Amendment
No. 1 to Amended By-laws of Algorhythm Holdings, Inc., effective October 18, 2024 (incorporated by reference to Exhibit 3.1 in
Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on October 21, 2024). | |
| 
| 
| 
| |
| 
3.12 | 
| 
Certificate
of Amendment to the Certificate of Incorporation of Algorhythm Holdings, Inc. filed with the Delaware Secretary of State on January
14, 2025 (incorporated by reference to Exhibit 3.1 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on
January 17, 2025). | |
| 
| 
| 
| |
| 
4.1 | 
| 
Description of Securities (incorporated by reference to Algorhythm Holdings, Inc.s Transition Report on Form 10-KT filed with the SEC on July 14, 2022). | |
| 
| 
| 
| |
| 
10.1 | 
| 
Lease, dated July 31, 2011, by and between Algorhythm Holdings, Inc. and Lakeside IV, LLC (incorporated by reference to Algorhythm Holdings, Inc.s Current Report on Form 10-KT filed with the SEC on June 29, 2011). | |
| 
| 
| 
| |
| 
10.2+ | 
| 
The Singing Machine 2022 Equity Incentive Plan (incorporated by reference to Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on April 18, 2022). | |
| 
| 
| 
| |
| 
10.3 | 
| 
Form of Indemnification Agreement to be entered into with Algorhythm Holdings, Inc. and each of its officers and directors (incorporated by reference to Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on May 27, 2022). | |
| 
10.4 | 
| 
Loan Agreement, dated March 28, 2024, by and between Algorhythm Holdings, Inc. and Oxford Commercial Finance (incorporated by reference to Exhibit 10.1 in the Companys Current Report on Form 8-K filed with the SEC on April 3, 2024). | |
| 
| 
| 
| |
| 
10.5 | 
| 
Revolving Credit Note, dated March 28, 2024, issued by Algorhythm Holdings, Inc. in favor of Oxford Commercial Finance (incorporated by reference to Exhibit 10.2 in the Companys Current Report on Form 8-K filed with the SEC on April 3, 2024). | |
| 
| 
| 
| |
| 
10.6 | 
| 
Security
Agreement, dated March 28, 2024, by and between Algorhythm Holdings, Inc. and Oxford Commercial Finance (incorporated by reference to Exhibit 10.3 in the Companys Current Report on Form 8-K filed with the SEC on April 3,
2024). | |
| 
| 
| 
| |
| 
10.7 | 
| 
Operating
Agreement, dated July 3, 2024, by and among Algorhythm Holdings, Inc., SemiCab Holdings, LLC and SemiCab, Inc. (incorporated by
reference to Exhibit 10.1 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on June 12,
2024). | |
| 
| 
| 
| |
| 
10.8 | 
| 
At-The-Market
Issuance Sales Agreement, dated June 26, 2024, by and between Algorhythm Holdings, Inc. and Ascendiant Capital Markets, LLC
(incorporated by reference to Exhibit 1.1 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on June
27, 2024). | |
| 
| 
| 
| |
| 
10.9 | 
| 
Amendment
to At-The-Market Issuance Sales Agreement, dated July 8, 2024, by and between Algorhythm Holdings, Inc. and Ascendiant Capital
Markets, LLC (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.s Current Report on
Form 8-K filed with the SEC on July 9, 2024). | |
| 
| 
| 
| |
| 
10.10 | 
| 
Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 in the Companys Form 8-K filed with the SEC on October 24, 2024). | |
| 
| 
| 
| |
| 
10.11 | 
| 
Form of Original Issue Discount Senior Secured Note (incorporated by reference to Exhibit 10.2 in the Companys Form 8-K filed with the SEC on October 24, 2024). | |
| 73 | |
| 
10.12 | 
| 
Form of Guarantee (incorporated by reference to Exhibit 10.3 in the Companys Form 8-K filed with the SEC on October 24, 2024). | |
| 
| 
| 
| |
| 
10.13 | 
| 
Stock
Repurchase Agreement, dated November 1, 2024, by and between Algorhythm Holdings, Inc. and Regalia Ventures, LLC (incorporated by
reference to Exhibit 10.1 in the Companys Form 8-K filed with the SEC on November 7, 2024). | |
| 
| 
| 
| |
| 
10.14 | 
| 
Stock Repurchase Agreement, dated December 3, 2024, by and between Algorhythm Holdings, Inc. and Stingray Group, Inc. (incorporated by reference to Exhibit 10.3 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on December 6, 2024). | |
| 
| 
| 
| |
| 
10.15 | 
| 
Form of Series A Warrant, dated December 4, 2024 (incorporated by reference to Exhibit 4.1 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on December 6, 2024). | |
| 
| 
| 
| |
| 
10.16 | 
| 
Form of Series B Warrant, dated December 4, 2024 (incorporated by reference to Exhibit 4.2 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on December 6, 2024). | |
| 
| 
| 
| |
| 
10.17 | 
| 
Form of Pre-Funded Warrant, dated December 4, 2024 (incorporated by reference to Exhibit 4.3 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on December 6, 2024). | |
| 
| 
| 
| |
| 
10.18 | 
| 
Form of Securities Purchase Agreement, dated December 4, 2024 (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on December 6, 2024). | |
| 
| 
| 
| |
| 
10.19 | 
| 
Placement Agency Agreement, dated December 4, 2024, between Algorhythm Holdings, Inc. and Univest Securities, LLC (incorporated by reference to Exhibit 10.2 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on December 6, 2024). | |
| 
| 
| 
| |
| 
10.20 | 
| 
Form of Securities Purchase Agreement dated December 17, 2024 (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on December 18, 2024). | |
| 
| 
| 
| |
| 
10.21 | 
| 
Placement
Agency Agreement, dated December 17, 2024, between Algorhythm Holdings, Inc. and Univest Securities, LLC (incorporated by reference
to Exhibit 10.2 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on December 18,
2024). | |
| 
| 
| 
| |
| 
10.22+ | 
| 
Employment Agreement, dated February 12, 2025, between Algorhythm Holdings, Inc. and Alex Andre (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on February 18, 2025). | |
| 
| 
| 
| |
| 
10.23 | 
| 
Stock Option, dated February 13, 2025, issued by Algorhythm Holdings, Inc. to Alex Andre (incorporated by reference to Exhibit 10.2 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on February 18, 2025). | |
| 
| 
| 
| |
| 
10.24 | 
| 
Restricted Stock Award, dated February 13, 2025, issued by Algorhythm Holdings, Inc. to Alex Andre (incorporated by reference to Exhibit 10.3 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on February 18, 2025). | |
| 
| 
| 
| |
| 
10.25 | 
| 
Equity Purchase Agreement, dated May 2, 2025, by and among Algorhythm Holdings, Inc., SemiCab Holdings, LLC and SemiCab, Inc. (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on May 8, 2025). | |
| 
| 
| 
| |
| 
10.26 | 
| 
Promissory Note, dated May 2, 2025, issued by Algorhythm Holdings, Inc. in favor of SemiCab, Inc. (incorporated by reference to Exhibit 10.2 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on May 8, 2025). | |
| 
| 
| 
| |
| 
10.27 | 
| 
Amended and Restated Limited Liability Company Agreement of SemiCab Holdings, LLC, dated May 2, 2025, by and among Algorhythm Holdings, Inc., SemiCab Holdings, LLC, Ajesh Kapoor and Vivek Sehgal (incorporated by reference to Exhibit 10.3 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on May 8, 2025). | |
| 
| 
| 
| |
| 
10.28 | 
| 
Asset Purchase Agreement, dated August 1, 2025, by and among Algorhythm Holdings, Inc., The Singing Machine Company, Inc. and Stingray Music USA, Inc. (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on August 7, 2025). | |
| 
| 
| 
| |
| 
10.29 | 
| 
Securities Purchase Agreement, dated August 21, 2025, by and among Algorhythm Holdings, Inc. and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on August 27, 2025). | |
| 74 | |
| 
10.30 | 
| 
Secured Pre-Paid Purchase #1, dated August 21, 2025, by and among Algorhythm Holdings, Inc. and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.2 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on August 27, 2025). | |
| 
| 
| 
| |
| 
10.31 | 
| 
Security Agreement, dated August 21, 2025, by and among Algorhythm Holdings, Inc. and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.3 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on August 27, 2025). | |
| 
| 
| 
| |
| 
10.32 | 
| 
Guaranty, dated August 21, 2025, by and among SemiCab Holdings, LLC, SMCB Solutions Private Limited, and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.4 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on August 27, 2025). | |
| 
| 
| 
| |
| 
10.33 | 
| 
Secured Pre-Paid Purchase #2, dated November 13, 2025, by and between Algorhythm Holdings, Inc. and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.6 in Algorhythm Holdings, Inc.s Quarterly Report on Form 10-Q filed with the SEC on November 19, 2025). | |
| 
| 
| 
| |
| 
10.34 | 
| 
Deposit Account Control Agreement, dated November 13, 2025, by and among RIME Holdings, LLC, Lakeside Bank and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.7 in Algorhythm Holdings, Inc.s Quarterly Report on Form 10-Q filed with the SEC on November 19, 2025). | |
| 
| 
| 
| |
| 
10.35 | 
| 
Guaranty, dated November 13, 2025, issued by RIME Holdings, LLC for the benefit of Streeterville Capital, LLC (incorporated by reference to Exhibit 10.8 in Algorhythm Holdings, Inc.s Quarterly Report on Form 10-Q filed with the SEC on November 19, 2025). | |
| 
| 
| 
| |
| 
10.36+ | 
| 
Amendment to the Algorhythm Holdings, Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on November 26, 2025). | |
| 
| 
| 
| |
| 
10.37 | 
| 
Secured Pre-Paid Purchase #3, dated December 19, 2025, by and among Algorhythm Holdings, Inc. and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.2 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on December 29, 2025). | |
| 
| 
| 
| |
| 
10.38 | 
| 
Secured Pre-Paid Purchase #4, dated February 17, 2026, by and among Algorhythm Holdings, Inc. and Streeterville Capital, LLC (incorporated by reference to Exhibit 10.2 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on February 23, 2026). | |
| 
| 
| 
| |
| 
10.39 | 
| 
Guaranty, dated February 17, 2026, issued by RIME Holdings, LLC for the benefit of Streeterville Capital, LLC (incorporated by reference to Exhibit 10.4 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on February 23, 2026). | |
| 
| 
| 
| |
| 
10.40+ | 
| 
Amended and Restated Employment Agreement, dated February 23, 2026, by and between Algorhythm Holdings, Inc. and Gary Atkinson (incorporated by reference to Exhibit 10.1 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on February 27, 2026). | |
| 
| 
| 
| |
| 
10.41 | 
| 
Stock Option, dated February 23, 2026, by and between Algorhythm Holdings, Inc. and Gary Atkinson (incorporated by reference to Exhibit 10.2 in Algorhythm Holdings, Inc.s Current Report on Form 8-K filed with the SEC on February 27, 2026). | |
| 
| 
| 
| |
| 
19.1* | 
| 
Algorhythm Holdings, Inc. Insider Trading Policy | |
| 
| 
| 
| |
| 
21.1* | 
| 
List of subsidiaries of Algorhythm Holdings, Inc. | |
| 
| 
| 
| |
| 
23.1* | 
| 
Consent of M&K CPAS PLLC | |
| 
| 
| 
| |
| 
23.2* | 
| 
Consent of M&K CPAS PLLC | |
| 
| 
| 
| |
| 
23.3* | 
| 
Consent of M&K CPAS PLLC | |
| 
| 
| 
| |
| 
23.4* | 
| 
Consent of Marcum LLP | |
| 
| 
| 
| |
| 
31.1* | 
| 
Certification of Gary Atkinson, Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. | |
| 
| 
| 
| |
| 
31.2* | 
| 
Certification of Alex Andre, Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. | |
| 
| 
| 
| |
| 
32.1** | 
| 
Certifying Statement of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act. | |
| 
| 
| 
| |
| 
32.2** | 
| 
Certifying Statement of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. | |
| 
| 
| 
| |
| 
97 | 
| 
Algorhythm
Holdings, Inc. Clawback Policy (incorporated by reference to Exhibit 97 in Algorhythm Holdings, Inc.s Transition Report on
Form 10-KT filed with the SEC on April 15, 2024). | |
| 
| 
| 
| |
| 
101.INS | 
| 
Inline
XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within
the Inline XBRL document. | |
| 
| 
| 
| |
| 
101.SCH | 
| 
Inline XBRL Taxonomy Extension
Schema Document. | |
| 
| 
| 
| |
| 
101.CAL | 
| 
Inline XBRL Taxonomy Extension
Calculation Linkbase Document. | |
| 
| 
| 
| |
| 
101.DEF | 
| 
Inline XBRL Taxonomy Extension
Definition Linkbase Document. | |
| 
| 
| 
| |
| 
101.LAB | 
| 
Inline XBRL Taxonomy Extension
Label Linkbase Document. | |
| 
| 
| 
| |
| 
101.PRE | 
| 
Inline XBRL Taxonomy Extension
Presentation Linkbase Document. | |
| 
| 
| 
| |
| 
104 | 
| 
Cover Page Interactive
Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
*
Filed herewith
**
Furnished herewith
+
Compensatory plan or arrangement
The schedules and exhibits to this agreement
have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the
SEC upon request.
**Item
16. Form 10-K Summary.**
None.
| 75 | |
**SIGNATURES**
In
accordance with the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, Algorhythm Holdings, Inc. has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
**ALGORHYTHM
HOLDINGS, INC.**
****
****
| 
Date:
April 1, 2026 | 
By: | 
/s/
Gary Atkinson | 
|
| 
| 
Gary
Atkinson | 
|
| 
| 
Chief
Executive Officer | 
|
| 
| 
(Principal
Executive Officer) | 
|
| 
| 
| 
|
| 
Date:
April 1, 2026 | 
By: | 
/s/
Alex Andre | 
|
| 
| 
Alex
Andre | 
|
| 
| 
Chief
Financial Officer & General Counsel | 
|
| 
| 
(Principal
Financial and Accounting Officer) | 
|
In
accordance with the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of Algorhythm Holdings, Inc. and in the capacities and on the dates indicated.
| 
Signature | 
| 
Title | 
| 
Date | |
| 
| 
| 
| 
| 
| |
| 
/s/
Gary Atkinson | 
| 
Chief
Executive Officer and Director | 
| 
April 1, 2026 | |
| 
Gary
Atkinson | 
| 
(Principal Executive Officer) | 
| 
| |
| 
| 
| 
| 
| 
| |
| 
/s/
Alex Andre | 
| 
Chief
Financial Officer and General Counsel | 
| 
April 1, 2026 | |
| 
Alex
Andre | 
| 
(Principal Financial Officer) | 
| 
| |
| 
| 
| 
| 
| 
| |
| 
/s/
Harvey Judkowitz | 
| 
Director | 
| 
April 1, 2026 | |
| 
Harvey
Judkowitz | 
| 
| 
| 
| |
| 
| 
| 
| 
| 
| |
| 
/s/
Bernardo Melo | 
| 
Director | 
| 
April 1, 2026 | |
| 
Bernardo
Melo | 
| 
| 
| 
| |
| 
| 
| 
| 
| 
| |
| 
/s/
Ajesh Kapoor | 
| 
Director | 
| 
April 1, 2026 | |
| 
Ajesh
Kapoor | 
| 
| 
| 
| |
| 
| 
| 
| 
| 
| |
| 
/s/
Scott Thorn | 
| 
Director | 
| 
April 1, 2026 | |
| 
Scott
Thorn | 
| 
| 
| 
| |
| 
| 
| 
| 
| 
| |
| 
/s/
Kapil Gupta | 
| 
Director | 
| 
April 1, 2026 | |
| 
Kapil
Gupta | 
| 
| 
| 
| |
| 76 | |
****
**Algorhythm
Holdings, Inc.**
**Index
to Financial Statements**
| 
| 
Page | |
| 
| 
| |
| 
Report of Independent Registered Public Accounting Firm (PCAOB ID: 2738) | 
F-2 | |
| 
Report of Independent Registered Public Accounting Firm (PCAOB ID: 688) | 
F-3 | |
| 
Consolidated Balance Sheets at December 31, 2025 and 2024 | 
F-4 | |
| 
Consolidated Statements of Operations for the Years Ended December 31, 2025 and 2024 | 
F-5 | |
| 
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2025 and 2024 | 
F-6 | |
| 
Consolidated Statements of Stockholders Deficit for the Years Ended December 31, 2025 and 2024 | 
F-7 | |
| 
Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 | 
F-8 | |
| 
Notes to Consolidated Financial Statements | 
F-9 | |
| F-1 | |
****
**Report
of Independent Registered Public Accounting Firm**
****
To
the Board of Directors and Stockholders of Algorhythm Holdings, Inc.
****
**Opinion
on the Financial Statements**
****
We
have audited the accompanying consolidated balance sheet of Algorhythm Holdings, Inc. (the Company) as of December 31, 2025, and the
related consolidated statements of operations, comprehensive loss, shareholders deficit, and cash flows for the year ended December
31, 2025 and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December
31, 2025, and the results of its operations and its cash flows for the year ended December 31, 2025, in conformity with accounting principles
generally accepted in the United States of America. The consolidated financial statements of Algorhythm Holdings, Inc. as of December
31, 2024 were audited by other auditors whose report dated April 15, 2025 expressed an unqualified opinion on those statements.
We
also have audited the adjustments to the 2024 consolidated financial statements to retrospectively apply the discontinued operations
reclassifications related to the disposition of the Singing Machine business, as described in Notes 19, and the retrospective adjustments
to share and per share data as a result of the reverse stock split, as described in Note 11 as well as the change to the segment information
described in Note 15 as a result of the discontinued operations. In our opinion, such adjustments are appropriate and have been properly
applied. We were not engaged to audit, review, or apply any procedures to the 2024 consolidated financial statements of the Company other
than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2024 consolidated
financial statements taken as a whole.
**Going
Concern**
****
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 3 to the consolidated financial statements, the Company suffered a net loss from operations and has an accumulated deficit, which
raises substantial doubt about its ability to continue as a going concern. Managements plans regarding those matters are discussed
in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
**Basis
for Opinion**
****
These
consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion
on the Companys financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part
of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing
an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles
used and the significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe our audit provides a reasonable basis for our opinion.
**Critical
Audit Matter**
****
The
critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that
were communicated, or required to be communicated, to the audit committee and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the
critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
*Going
Concern*
**
Due
to the net loss for the year, the Company evaluated the need for a going concern.
Auditing
managements evaluation of a going concern can be a significant judgement given the fact that the Company uses management estimates
on future revenues and expenses which are not able to be substantiated.
As
discussed in Note 3, the Company suffered a net loss from operations and has an accumulated deficit for the year ended December 31, 2025.
To
evaluate the appropriateness of the going concern, we examined and evaluated the financial information along with managements
plans to mitigate the going concern and managements disclosure on going concern.
/s/M&K
CPAS, PLLC
We
have served as the Companys auditor since 2025
The
Woodlands, TX
April 1, 2026
****
| F-2 | |
****
**Report
of Independent Registered Public Accounting Firm**
To
the Shareholders and Board of Directors of
Algorhythm
Holdings, Inc.
**Opinion
on the Financial Statements**
****
We
have audited the accompanying consolidated balance sheet of Algorhythm Holdings, Inc. (the Company) as of December 31,
2024, the related consolidated statements of operations, shareholders deficit, and cash flows for the year ended December 31,
2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial
statements, before the effects of the adjustments to retrospectively adjust share and per share amounts for the reverse split as
described in Note 1, and to reclassify the operations of the sold Singing Machine business as discontinued operations as described
in Notes 2 and 19 and segment information as described in Note 15, present fairly, in all material respects, the financial position
of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024,
in conformity with accounting principles generally accepted in the United States of America.
We were not engaged to audit, review, or apply any procedures to the adjustments
to retrospectively adjust share and per share amounts for the reverse split as described in Note 1, and to reclassify the operations of
the sold Singing Machine business as discontinued operations as described in Notes 2 and 19 and segment information as described in Note
15, and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have
been properly applied. Those adjustments were audited by M&K CPAs, PLLC.
**Explanatory
Paragraph Going Concern**
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described
in Note 2, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations.
These conditions raise substantial doubt about the Companys ability to continue as a going concern. Managements plans in regard to
these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
**Basis
for Opinion**
These
financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides
a reasonable basis for our opinion.
/s/
Marcum LLP
Marcum
llp
We
have served as the Companys auditor from 2023 through April 2025.
****
Philadelphia,
Pennsylvania
April
15, 2025
| F-3 | |
****
**Algorhythm
Holdings, Inc. and Subsidiaries**
**CONSOLIDATED
BALANCE SHEETS**
****
| 
| | 
December 31, 2025 | | | 
December 31, 2024 | | |
| 
| | 
| | | 
| | |
| 
Assets | | 
| | | | 
| | | |
| 
| | 
| | | | 
| | | |
| 
Current Assets | | 
| | | | 
| | | |
| 
Cash | | 
$ | 1,632,000 | | | 
$ | 7,233,000 | | |
| 
Restricted cash | | 
| 4,514,000 | | | 
| - | | |
| 
Accounts receivable, net of allowances of $113,000 and $127,000, respectively | | 
| 1,061,000 | | | 
| 121,000 | | |
| 
Accounts receivable, related party | | 
| - | | | 
| 701,000 | | |
| 
Accounts receivable | | 
| - | | | 
| 701,000 | | |
| 
Prepaid expenses and other current assets | | 
| 729,000 | | | 
| 59,000 | | |
| 
Current assets of discontinued operations | | 
| - | | | 
| 8,649,000 | | |
| 
Total Current Assets | | 
| 7,936,000 | | | 
| 16,763,000 | | |
| 
| 
| | | | 
| | | |
| 
Property and equipment, net | | 
| 22,000 | | | 
| 2,000 | | |
| 
Other non-current assets | | 
| 79,000 | | | 
| - | | |
| 
Intangible assets, net | | 
| 2,005,000 | | | 
| 345,000 | | |
| 
Goodwill | | 
| 2,682,000 | | | 
| 786,000 | | |
| 
Non-current assets of discontinued operations | | 
| - | | | 
| 406,000 | | |
| 
Total Assets | | 
$ | 12,724,000 | | | 
$ | 18,302,000 | | |
| 
| 
| | | | 
| | | |
| 
Liabilities and Shareholders Equity | | 
| | | | 
| | | |
| 
| 
| | | | 
| | | |
| 
Current Liabilities | | 
| | | | 
| | | |
| 
Accounts payable | | 
$ | 1,413,000 | | | 
$ | 387,000 | | |
| 
Accrued expenses | | 
| 1,556,000 | | | 
| 1,746,000 | | |
| 
Other current liabilities | | 
| 69,000 | | | 
| - | | |
| 
Warrant liability | | 
| - | | | 
| 16,603,000 | | |
| 
Promissory notes payable, net | | 
| 9,102,000 | | | 
| 50,000 | | |
| 
Current portion of notes payable to related parties | | 
| 2,300,000 | | | 
| 265,000 | | |
| 
Current liabilities of discontinued operations | | 
| - | | | 
| 9,387,000 | | |
| 
Total Current Liabilities | | 
| 14,440,000 | | | 
| 28,438,000 | | |
| 
| 
| | | | 
| | | |
| 
Long-term provision for employee benefits | | 
| 144,000 | | | 
| - | | |
| 
Notes payable to related parties, net of current portion | | 
| - | | | 
| 385,000 | | |
| 
Total Liabilities | | 
| 14,584,000 | | | 
| 28,823,000 | | |
| 
| 
| | | | 
| | | |
| 
Commitments and Contingencies | | 
| - | | | 
| | | |
| 
| 
| | | | 
| | | |
| 
Shareholders Equity (Deficit) | | 
| | | | 
| | | |
| 
Preferred stock, $1.00 par value; 1,000,000 shares authorized; no shares issued and outstanding at
December 31, 2025 and December 31, 2024 | | 
| - | | | 
| - | | |
| 
Common stock, $0.01 par value; 800,000,000 and 100,000,000 shares authorized; 3,414,542 and 470,825
shares issued and outstanding at December 31, 2025 and December 31, 2024 | | 
| 35,000 | | | 
| 5,000 | | |
| 
Additional paid-in capital | | 
| 65,674,000 | | | 
| 39,682,000 | | |
| 
Accumulated other comprehensive loss | | 
| (25,000 | ) | | 
| - | | |
| 
Accumulated deficit | | 
| (65,043,000 | ) | | 
| (49,172,000 | ) | |
| 
Non-controlling interest | | 
| (1,743,000 | ) | | 
| (1,036,000 | ) | |
| 
Treasury stock, 10,990 and -0- shares reserved at December 31, 2025 and December 31, 2024 | | 
| (758,000 | ) | | 
| - | | |
| 
Total Shareholders Deficit | | 
| (1,860,000 | ) | | 
| (10,521,000 | ) | |
| 
| 
| | | | 
| | | |
| 
Total Liabilities and Shareholders Deficit | | 
$ | 12,724,000 | | | 
$ | 18,302,000 | | |
**See
notes to the consolidated financial statements**
****
| F-4 | |
****
**Algorhythm
Holdings, Inc. and Subsidiaries**
**CONSOLIDATED
STATEMENTS OF OPERATIONS**
| 
| | 
December 31, 2025 | | | 
December 31, 2024 | | |
| 
| | 
Year Ended | | |
| 
| | 
December 31, 2025 | | | 
December 31, 2024 | | |
| 
| | 
| | | 
| | |
| 
Net Sales | | 
$ | 4,391,000 | | | 
$ | 297,000 | | |
| 
| | 
| | | | 
| | | |
| 
Cost of Sales | | 
| 5,706,000 | | | 
| 491,000 | | |
| 
| | 
| | | | 
| | | |
| 
Gross Loss | | 
| (1,315,000 | ) | | 
| (194,000 | ) | |
| 
| | 
| | | | 
| | | |
| 
Operating Expenses | | 
| | | | 
| | | |
| 
Selling expenses | | 
| 4,000 | | | 
| - | | |
| 
General and administrative expenses | | 
| 6,629,000 | | | 
| 4,656,000 | | |
| 
Impairment of goodwill | | 
| - | | | 
| 3,592,000 | | |
| 
Total Operating Expenses | | 
| 6,633,000 | | | 
| 8,248,000 | | |
| 
| | 
| | | | 
| | | |
| 
Loss From Operations | | 
| (7,948,000 | ) | | 
| (8,442,000 | ) | |
| 
| | 
| | | | 
| | | |
| 
Other Expenses | | 
| | | | 
| | | |
| 
Change in fair value of warrant liability | | 
| (6,468,000 | ) | | 
| 334,000 | | |
| 
Loss on issuance of warrants | | 
| - | | | 
| (8,889,000 | ) | |
| 
Interest expense, net | | 
| (747,000 | ) | | 
| (1,887,000 | ) | |
| 
Total Other Expenses | | 
| (7,215,000 | ) | | 
| (10,442,000 | ) | |
| 
| | 
| | | | 
| | | |
| 
Loss From Continuing Operations Before Income Tax | | 
| (15,163,000 | ) | | 
| (18,884,000 | ) | |
| 
| | 
| | | | 
| | | |
| 
Income tax loss attributable to continuing operations | | 
| (47,000 | ) | | 
| - | | |
| 
| | 
| | | | 
| | | |
| 
Net Loss From Continuing Operations | | 
| (15,210,000 | ) | | 
| (18,884,000 | ) | |
| 
| | 
| | | | 
| | | |
| 
Net loss from discontinued operations | | 
| (1,362,000 | ) | | 
| (5,483,000 | ) | |
| 
| | 
| | | | 
| | | |
| 
Net Loss | | 
| (16,572,000 | ) | | 
| (24,367,000 | ) | |
| 
| | 
| | | | 
| | | |
| 
Net loss attributable to non-controlling interest | | 
| 701,000 | | | 
| 1,110,000 | | |
| 
| | 
| | | | 
| | | |
| 
Net Loss Available to Common Shareholders | | 
$ | (15,871,000 | ) | | 
$ | (23,257,000 | ) | |
| 
| | 
| | | | 
| | | |
| 
Loss Per Common Share | | 
| | | | 
| | | |
| 
Basic and diluted from continuing operations | | 
$ | (5.86 | ) | | 
$ | (270.44 | ) | |
| 
Basic and diluted from discontinued operations | | 
| (0.55 | ) | | 
| (83.43 | ) | |
| 
Basic and diluted | | 
$ | (6.41 | ) | | 
$ | (353.87 | ) | |
| 
| | 
| | | | 
| | | |
| 
Weighted Average Common and Common | | 
| | | | 
| | | |
| 
Equivalent Shares: | | 
| | | | 
| | | |
| 
Weighted Average Common and Common Equivalent Shares: | | 
| | | | 
| | | |
| 
Basic and diluted | | 
| 2,475,293 | | | 
| 65,722 | | |
**See
notes to the consolidated financial statements**
****
| F-5 | |
****
**Algorhythm
Holdings, Inc. and Subsidiaries**
**CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS**
| 
| | 
December 31, 2025 | | | 
December 31, 2024 | | |
| 
| | 
Year Ended | | |
| 
| | 
December 31, 2025 | | | 
December 31, 2024 | | |
| 
| | 
| | | 
| | |
| 
Net Loss | | 
$ | (16,572,000 | ) | | 
$ | (24,367,000 | ) | |
| 
| | 
| | | | 
| | | |
| 
Other comprehensive loss | | 
| | | | 
| | | |
| 
Foreign currency translation adjustment | | 
| (31,000 | ) | | 
| - | | |
| 
Total Comprehensive Loss | | 
| (16,603,000 | ) | | 
| (24,367,000 | ) | |
| 
| | 
| | | | 
| | | |
| 
Total comprehensive loss attributable to non-controlling interest | | 
| 707,000 | | | 
| - | | |
| 
| | 
| | | | 
| | | |
| 
Total Comprehensive Loss Available to Common Shareholders | | 
$ | (15,896,000 | ) | | 
$ | (24,367,000 | ) | |
**See
notes to the consolidated financial statements**
****
| F-6 | |
**Algorhythm
Holdings, Inc. and Subsidiaries**
**CONSOLIDATED
STATEMENTS OF SHAREHOLDERS DEFICIT**
**For
the Year Ended December 31, 2025 and 2024**
| 
| | 
| | | 
| | | 
| | | 
| | | 
| | | 
| | | 
| | | 
| | |
| 
| | 
Common
Stock | | | 
AdditionalPaid-in | | | 
Treasury | | | 
Accumulated
Other Comprehensive | | | 
Accumulated | | | 
Non-Controlling | | | 
| | |
| 
| | 
Shares | | | 
Amount | | | 
Capital | | | 
Stock | | | 
Loss | | | 
Deficit | | | 
Interest | | | 
Total | | |
| 
Balance
at December 31, 2023 | | 
| 32,090 | | | 
$ | - | | | 
$ | 33,493,000 | | | 
$ | - | | | 
$ | - | | | 
$ | (25,915,000 | ) | | 
$ | - | | | 
$ | 7,578,000 | | |
| 
| | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | |
| 
Net
loss | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| (23,257,000 | ) | | 
| (1,110,000 | ) | | 
| (24,367,000 | ) | |
| 
Sale
of common stock and pre-funded warrants, net of offering costs | | 
| 418,927 | | | 
| 4,000 | | | 
| 4,881,000 | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| 4,885,000 | | |
| 
Stock
based compensation | | 
| 5,099 | | | 
| - | | | 
| 630,000 | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| 630,000 | | |
| 
Common
stock issued for purchase of SemiCab, Inc. | | 
| 3,209 | | | 
| - | | | 
| 494,000 | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| 494,000 | | |
| 
Subsidiary
interests issued for purchase of SemiCab, Inc. | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| 74,000 | | | 
| 74,000 | | |
| 
Repurchase
of common stock - related parties | | 
| - | | | 
| - | | | 
| (758,000 | ) | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| (758,000 | ) | |
| 
Issuance
of common stock with debt | | 
| 11,500 | | | 
| 1,000 | | | 
| 942,000 | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| 943,000 | | |
| 
| | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | |
| 
Balance
at December 31, 2024 | | 
| 470,825 | | | 
$ | 5,000 | | | 
$ | 39,682,000 | | | 
$ | - | | | 
$ | - | | | 
$ | (49,172,000 | ) | | 
$ | (1,036,000 | ) | | 
$ | (10,521,000 | ) | |
| 
| | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | |
| 
Net
loss | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| (15,871,000 | ) | | 
| (701,000 | ) | | 
| (16,572,000 | ) | |
| 
Foreign
currency translation adjustment | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| (25,000 | ) | | 
| - | | | 
| (6,000 | ) | | 
| (31,000 | ) | |
| 
Exercise
of Series B warrants | | 
| 1,910,975 | | | 
| 19,000 | | | 
| 15,195,000 | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| 15,214,000 | | |
| 
Stock-based
compensation | | 
| 186,701 | | | 
| 3,000 | | | 
| 431,000 | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| 434,000 | | |
| 
Reclassification
of Series A warrants to equity | | 
| - | | | 
| - | | | 
| 7,857,000 | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| 7,857,000 | | |
| 
Capital
contribution | | 
| - | | | 
| - | | | 
| 439,000 | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| 439,000 | | |
| 
Common
stock issued for acquisition of SMCB | | 
| 119,742 | | | 
| 1,000 | | | 
| 315,000 | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| 316,000 | | |
| 
Repurchase
of common stock from related parties | | 
| (10,990 | ) | | 
| - | | | 
| 758,000 | | | 
| (758,000 | ) | | 
| - | | | 
| - | | | 
| - | | | 
| - | | |
| 
Common
stock issued as commitment fee | | 
| 95,694 | | | 
| 1,000 | | | 
| 190,000 | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| 191,000 | | |
| 
Common
stock issued upon settlement of prepaid purchases | | 
| 505,671 | | | 
| 5,000 | | | 
| 670,000 | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| 675,000 | | |
| 
Conversion
of promissory note payable into common stock | | 
| 135,723 | | | 
| 1,000 | | | 
| 137,000 | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| 138,000 | | |
| 
Other | | 
| 201 | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | | 
| - | | |
| 
| | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | |
| 
Balance
at December 31, 2025 | | 
| 3,414,542 | | | 
$ | 35,000 | | | 
$ | 65,674,000 | | | 
$ | (758,000 | ) | | 
$ | (25,000 | ) | | 
$ | (65,043,000 | ) | | 
$ | (1,743,000 | ) | | 
$ | (1,860,000 | ) | |
**See
notes to the consolidated financial statements**
****
| F-7 | |
****
**Algorhythm
Holdings, Inc. and Subsidiaries**
**CONSOLIDATED
STATEMENTS OF CASH FLOWS**
| 
| | 
December
31, 2025 | | | 
December
31, 2024 | | |
| 
| | 
For the Year
Ended | | |
| 
| | 
December
31, 2025 | | | 
December
31, 2024 | | |
| 
| | 
| | | 
| | |
| 
Cash flows from operating
activities | | 
| | | | 
| | | |
| 
Net loss from continuing operations | | 
$ | (15,210,000 | ) | | 
$ | (18,884,000 | ) | |
| 
Adjustments to reconcile net loss to net cash
used in operating activities: | | 
| | | | 
| | | |
| 
Net foreign currency translation
adjustment | | 
| (31,000 | ) | | 
| - | | |
| 
Depreciation and amortization
of property and equipment and intangible assets | | 
| 249,000 | | | 
| 30,000 | | |
| 
Amortization of debt discount
and issuance cost | | 
| 212,000 | | | 
| 1,520,000 | | |
| 
Reduction in SMCB loan
in exchange for services | | 
| 304,000 | | | 
| 637,000 | | |
| 
Loss on allowance for credit
loss | | 
| - | | | 
| 439,000 | | |
| 
Impairment of goodwill
from purchase of SemiCab,Inc. | | 
| - | | | 
| 3,592,000 | | |
| 
Change in fair value of
warrant liability | | 
| 6,468,000 | | | 
| (334,000 | ) | |
| 
Loss on issuance of warrants | | 
| - | | | 
| 8,889,000 | | |
| 
Stock-based compensation | | 
| 434,000 | | | 
| 630,000 | | |
| 
Changes in operating assets and liabilities: | | 
| | | | 
| | | |
| 
Accounts receivable | | 
| (621,000 | ) | | 
| 72,000 | | |
| 
Prepaid expenses and other
current assets | | 
| (293,000 | ) | | 
| (46,000 | ) | |
| 
Other non-current assets | | 
| 49,000 | | | 
| 14,000 | | |
| 
Accounts payable | | 
| 654,000 | | | 
| (345,000 | ) | |
| 
Accrued expenses | | 
| 263,000 | | | 
| (199,000 | ) | |
| 
Other current liabilities | | 
| 69,000 | | | 
| - | | |
| 
Provision for employee
benefits | | 
| 144,000 | | | 
| - | | |
| 
Net cash used in operating
activities attributable to continuing operations | | 
| (7,309,000 | ) | | 
| (3,985,000 | ) | |
| 
| | 
| | | | 
| | | |
| 
Cash flows from investing
activities | | 
| | | | 
| | | |
| 
Purchase of property and
equipment | | 
| (14,000 | ) | | 
| - | | |
| 
Capitalization of internal
use software costs | | 
| (419,000 | ) | | 
| - | | |
| 
Repurchase of shares of common stock | | 
| (758,000 | ) | | 
| - | | |
| 
Pre-acquistion advances
to SemiCab, Inc. | | 
| - | | | 
| (415,000 | ) | |
| 
Cash received from acquisition
of SemiCab, Inc. assets | | 
| - | | | 
| 17,000 | | |
| 
Cash received from acquisition
of SMCB | | 
| 593,000 | | | 
| - | | |
| 
Advances to SMCB | | 
| (1,172,000 | ) | | 
| (1,777,000 | ) | |
| 
Net cash used in investing
activities attributable to continuing operations | | 
| (1,770,000 | ) | | 
| (2,175,000 | ) | |
| 
| | 
| | | | 
| | | |
| 
Cash flows from financing
activities | | 
| | | | 
| | | |
| 
Proceeds from sale of common
stock and warrants, net of offering costs | | 
| - | | | 
| 12,932,000 | | |
| 
Proceeds from issuance
of senior secured notes, net of discounts | | 
| - | | | 
| 2,000,000 | | |
| 
Proceeds from issuance
of promissory notes, net of offering costs and discounts | | 
| 10,213,000 | | | 
| - | | |
| 
Payment of senior secured
notes and debt issuance costs | | 
| - | | | 
| (2,578,000 | ) | |
| 
Payment of promissory notes | | 
| (427,000 | ) | | 
| - | | |
| 
Payment of promissory notes,
related parties | | 
| (100,000 | ) | | 
| - | | |
| 
Payments on merchant cash
advances payable | | 
| - | | | 
| (631,000 | ) | |
| 
Other | | 
| - | | | 
| (75,000 | ) | |
| 
Net cash provided by financing
activities attributable to continuing operations | | 
| 9,686,000 | | | 
| 11,648,000 | | |
| 
| | 
| | | | 
| | | |
| 
Net cash used in operating
activities attributable to discontinued operations | | 
| (2,539,000 | ) | | 
| (5,080,000 | ) | |
| 
Net cash provided by investing
activities attributable to discontinued operations | | 
| 845,000 | | | 
| 122,000 | | |
| 
Net cash provided by financing
activities attributable to discontinued operations | | 
| - | | | 
| - | | |
| 
Total cash used in discontinued
operations | | 
| (1,694,000 | ) | | 
| (4,958,000 | ) | |
| 
| | 
| | | | 
| | | |
| 
Net change in cash | | 
| (1,087,000 | ) | | 
| 530,000 | | |
| 
| | 
| | | | 
| | | |
| 
Cash and restricted cash
at beginning of period | | 
| 7,233,000 | | | 
| 6,703,000 | | |
| 
Cash and restricted cash
at end of period | | 
$ | 6,146,000 | | | 
$ | 7,233,000 | | |
| 
| | 
| | | | 
| | | |
| 
Supplemental disclosures
of cash flow information: | | 
| | | | 
| | | |
| 
Cash paid for interest | | 
$ | 246,000 | | | 
$ | 591,000 | | |
| 
| | 
| | | | 
| | | |
| 
Non-Cash investing and financing
cash flow information: | | 
| | | | 
| | | |
| 
Reclassification of Series
A warrants to equity | | 
$ | 7,857,000 | | | 
$ | - | | |
| 
Common stock issued for
exercise of Series B warrants | | 
$ | 15,214,000 | | | 
$ | - | | |
| 
Issuance of common stock
with debt | | 
$ | - | | | 
| 943,000 | | |
| 
Repurchase of common shares-
related parties | | 
$ | - | | | 
| 758,000 | | |
| 
Effect of extinguishment
of advances to SemiCab, Inc. | | 
$ | - | | | 
| 415,000 | | |
| 
Common stock issued for
acquisition of SemiCab, Inc assets | | 
$ | - | | | 
| 568,000 | | |
| 
Common stock issued for
acquisition of SMCB | | 
$ | 316,000 | | | 
$ | - | | |
| 
Promissory note issued
for acquisition of SMCB | | 
$ | 1,750,000 | | | 
$ | - | | |
| 
Common stock issued as
commitment fee | | 
$ | 191,000 | | | 
$ | - | | |
| 
Common stock issued upon
settlement of prepaid purchases | | 
$ | 675,000 | | | 
$ | - | | |
| 
Conversion of promissory
note payable into common stock | | 
$ | 138,000 | | | 
$ | - | | |
See
notes to the consolidated financial statements
| F-8 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
**Note
1 Nature of Business**
Algorhythm
Holdings, Inc. (f/k/a The Singing Machine Company, Inc.) (the Company) is an artificial intelligence (AI)
technology company focused on the growth and development of SemiCab. SemiCab is an AI-enabled software logistics and distribution business
that utilizes the Companys SemiCab technology platform to enable retailers, brands and transportation providers to address common
supply chain problems globally. The Company operates its SemiCab business through its subsidiary, SemiCab Holdings, LLC.
Prior
to August 1, 2025, the Company had a second business, which was Singing Machine. Singing Machine was a home karaoke consumer products
business that designed and distributed karaoke products to retailers and ecommerce partners globally through its subsidiary, The Singing
Machine Company, Inc. The Company sold its Singing Machine business on August 1, 2025. Accordingly, the Company no longer owns or operates
the Singing Machine business. The results of operations, cash flows, and related assets and liabilities of the Singing Machine business have been
classified as discontinued operations in the Companys consolidated financial statements for all periods presented.
The
Companys operations include its 80%-owned subsidiaries, SemiCab Holdings, LLC, a Nevada limited liability company (SemiCab
Holdings), and SMCB Solutions Private Limited, an Indian company (SMCB), and its wholly-owned subsidiaries, SMC
Logistics, Inc., a California corporation (SMCL), SMC-Music, Inc., a Florida corporation (SMCM), SMC (HK)
Limited, a Hong Kong company (SMH), The Singing Machine Company, Inc., a Delaware corporation (SMC), and
RIME Holdings, LLC (Rime).
Effective
September 5, 2024, the Companys Certificate of Incorporation was amended to change the name of the Company from The Singing
Machine Company, Inc. to Algorhythm Holdings, Inc.
On
January 13, 2025, the Companys stockholders voted to authorize the Companys board of directors to effect a reverse stock
split of the Companys 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 Companys certificate of incorporation to increase the number of authorized common stock from 100,000,000 to 800,000,000
shares. On January 14, 2025, the Companys board of directors approved a reverse stock split of 1-for-200 ratio and approved the
filing of a certificate of amendment to the Companys certificate of incorporation to effect the reverse stock split and to increase
the Companys authorized shares of common stock from 100,000,000 to 800,000,000. The reverse stock split took effect on February
10, 2025. All current and prior year balances have been adjusted to reflect the reverse stock split.
**Note
2 Sale of Singing Machine Business**
****
On
August 1, 2025, the Company entered into an asset purchase agreement with SMC and Stingray Music USA, Inc. (Stingray USA)
pursuant to which Stingray USA purchased substantially all of the assets, and assumed most of the liabilities, associated with the Companys
Singing Machine business for $500,000. The transaction closed on August 1, 2025. Mathieu Peloquin is the Senior Vice-President, Marketing
and Communications of Stingray Group and served as a member of the Companys board of directors until October 6, 2025.
| F-9 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
The
Company determined that the sale of the Singing Machine business met the criteria under Accounting Standards Codification (ASC)
205-20, Presentation of Financial Statements Discontinued Operations (ASC 205-20), to be classified as a discontinued
operation as the sale represented a strategic shift that will have a significant effect on the Companys operations and financial
results. Accordingly, the Company accounted for the Singing Machine business as a discontinued operation in this Annual Report on Form
10-K. All amounts and disclosures for all periods presented reflect only the continuing operations of the Company unless otherwise noted.
Additional information is presented in *Note 19 Discontinued Operations*.
**Note
3 Liquidity, Going Concern and Management Plans**
As
of December 31, 2025, the Companys cash and restricted cash balance was $6,146,000. This will not be sufficient to fund its planned
operations for at least one year after the date the consolidated financial statements are issued. The Company has a recent history of
recurring operating losses and decreases in working capital. These factors create substantial doubt about the Companys ability
to continue as a going concern for at least one year after the date that the Companys audited consolidated financial statements
are issued.
The
consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going
concern. Accordingly, the consolidated financial statements have been prepared under the assumption that the Company will continue as
a going concern and that the realization of assets and satisfaction of liabilities and commitments will continue in the ordinary course
of business.
The
Company plans to finance its operations by obtaining additional capital through external sources of financing. It may attempt to obtain
additional capital through the sale of equity securities or the issuance of debt securities. The Company has not made any arrangements
to obtain additional capital and can provide no assurance that additional financing will be available in an amount or on terms acceptable
to the Company, if at all.
In
making this assessment, management performed a comprehensive analysis of the Companys current circumstances, including its financial
position, cash flow forecasts, and obligations and debts. Although management has a recent history of successful capital raises, the
analysis used to determine the Companys ability to continue as a going concern does not include cash resources outside the Companys
direct control that management expects to be available within the next 12 months.
| F-10 | |
****
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
****
**Note
4 Summary of Significant Accounting Policies**
****
**Basis
of Presentation**
****
The
accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the
United States of America (GAAP).
****
**Principles
of Consolidation**
****
The
accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries SMCL, SMCM, SMH, SMC,
Rime and its eighty percent (80%)-owned subsidiaries, SemiCab Holdings and SMCB. All intercompany accounts and transactions have been
eliminated in consolidation for all periods presented.
The
Company evaluates its business relationships with related parties to identify potential Variable Interest Entities (VIEs)
under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810, *Consolidation*.
The Company will consolidate any VIE in which it is deemed to be the primary beneficiary of the VIE. The Company will be deemed to be
the primary beneficiary of the VIE if the Company has a controlling financial interest in the VIE. A controlling financial interest has
the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact its economic performance;
and (ii) the obligation to absorb losses of the VIE that could be significant to the VIE or the right to receive benefits from the VIE
that could be significant to the VIE. If both characteristics are met and, then the Company will consolidate that VIE into its consolidated
financial statements.
As
prescribed by ASC 810, if the Company holds a variable interest in an entity that is a VIE, but the Company is not the entitys
primary beneficiary, then the Company must disclose the methodology (e.g., significant judgments and assumptions made) that it used to
determine that it is not the primary beneficiary of the VIE. Additional information required includes information about the types of
involvement considered significant, and those considered in the determination of whether the reporting entity is the primary beneficiary.
Furthermore,
if the Company provides or intends to provide financial or other support, whether explicitly or implicitly, to the VIE when not contractually
required to, the Company must disclose the type and amount of the support along with the primary reasons for providing the support. Both
qualitative and quantitative information about the Companys involvement with the VIE must be disclosed, including the nature,
purpose, size, and activities of the VIE and how the VIE is financed.
The
Company determined that SMCB was a VIE because the Company provided financial support to SMCB in the form of a loan agreement to fund
SMCBs operations. The Company further determined that it was not the primary beneficiary of SMCB because the Company did not have
the power to direct or controls significant activities related to its business. Accordingly, the Company did not consolidate SMCBs
results of operations and financial position in its consolidated financial statements prior to May 2, 2025.
On
May 2, 2025, SemiCab Holdings acquired 99.99% of the equity shares of SMCB from SemiCab, Inc. As a result, on May 2, 2025, the Company
consolidated SMCBs results of operations and financial position in its consolidated financial statements. A discussion of this
transaction is set forth herein in *Note 18 Acquisition of SMCB*.
| F-11 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
**Reclassification
of Prior Periods Presentation**
****
Certain
prior period amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect
on the reported results of operations.
****
**Use
of Estimates**
****
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ materially from these
estimates. Estimates are assessed each period and updated to reflect current information. Significant estimates include allowance for
credit losses, accruals relating to litigation, goodwill, share-based compensation expense and warrant liability.
****
**Segment
Reporting**
Pursuant
to ASC Topic 280, Segment Reporting (ASC 280), the Companys Chief Executive Officer serves as the Companys
Chief Operating Decision Maker (CODM).
Prior
to August 1, 2025, the CODM determined that the Company operated in two reportable segments: (i) the SemiCab business, and (ii) the Singing
Machine business. On August 1, 2025, the Company completed the sale of its Singing Machine business. Upon the completion of this transaction,
the Company began operating as a single reportable segment consisting of its SemiCab business.
The
CODM evaluates and manages the Companys operations using net loss as the primary measure to allocate resources, make operating
decisions, and assess financial performance. In addition, the CODM considers non-financial information and other qualitative factors
when evaluating performance, establishing compensation, monitoring budget-to-actual results, and making capital allocation decisions.
Additional
information is presented in *Note 15 Segment Information and Revenue Disaggregation*.
**Cash
and Restricted Cash**
****
The
Company considers cash to include cash in banks and deposits with financial institutions that can be liquidated without prior notice
or penalty. Cash is maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided
on such deposits.
The
Company classifies all cash whose use is limited by contractual provisions as restricted cash. Restricted cash as of December 31, 2025,
consists of cash required under the Streeterville Capital Transaction as detailed in *Note 12 Securities Transactions*.
| F-12 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
**Accounts
Receivable and Allowances for Expected Credit Losses**
****
The
Company recognizes credit losses in accordance with Accounting Standards Update (ASU) 2016-13,*Financial Instruments
Credit Losses (Topic 326)*. The Company recognizes
an allowance for credit losses at the time a receivable is recorded based on its estimate of expected credit losses and adjusts this
estimate over the life of the receivable as needed. The Company evaluates specific identified risks and the aggregation and risk characteristics
of a receivable pool and develops loss rates that reflect historical collections, current forecasts of future economic conditions over
the time horizon the Company is exposed to credit risk, and payment terms or conditions that may materially affect future forecasts.
As needed, amounts are written-off when determined to be uncollectible.
**Property
and Equipment, Net**
Property
and equipment are stated at cost, less accumulated depreciation. Expenditures for repairs and maintenance are charged to expense as incurred.
Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to their estimated useful lives using straight-line
methods.
**Intangible
Assets- Internal Use Software**
The
Company capitalized costs related to the development of internal-use software in accordance with ASC 350-40, Intangibles Goodwill
and Other Internal-Use Software. Capitalized costs primarily consist of personnel and third-party fees incurred during the application
development stage for software that support the Companys Software as a Service (SaaS) operations. Costs incurred
during the preliminary project and post-implementation stages are expensed as incurred. The capitalized internal-use software is amortized
on a straight-line basis over its estimated useful life, which is 5 years, beginning when the software is ready for its intended use.
**Goodwill**
The
Company evaluates its goodwill for impairment in accordance with ASU 350,*Intangibles Goodwill and Other*. Goodwill
is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible
assets acquired. The Company tests the recorded amount of goodwill for impairment on an annual basis on December 31 or more frequently
if there are indicators that the carrying amount of goodwill exceeds its carried value.
| F-13 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
**Long
Lived and Intangible Assets**
The
Company reviews long-lived assets and intangible assets for impairment in accordance with ASC Topic 360,*Property, Plant and
Equipment*(ASC 360). The Company reviews long-lived assets and intangible assets for impairment whenever events
or changes in business circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that the Company
considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations,
significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment
review is performed to evaluate a long-lived asset or intangible asset for recoverability, the Company compares forecasts of undiscounted
cash flows expected to result from the use and eventual disposition of the asset to its carrying value. An impairment loss is recognized
when the estimated undiscounted future cash flows expected to result from the use of the asset is less than its carrying amount. The
impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted
cash flows*.*
The
Company hadnoimpairment loss related to long-lived assets or intangible assets for the year ended December 31, 2025 or December
31, 2024.
**Business
Combinations**
The
Company accounts for business combinations using the acquisition method of accounting in accordance with ASC Topic 805,*Business
Combinations.*The Company allocates the purchase price of an acquired business to the tangible and intangible assets acquired
and liabilities assumed based upon their estimated fair values on the acquisition date. Any excess of the purchase price over the fair
value of the net assets acquired is recorded as goodwill. The purchase price allocation process requires management to make significant
estimates and assumptions at the acquisition date with respect to intangible assets. The allocation of the consideration transferred
in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may
be up to one year from the acquisition date. Direct transaction costs associated with the business combination are expensed as incurred.
The Company includes the results of operations of the business that it has acquired in its consolidated results prospectively from the
date of acquisition.
**Fair
Value Measurements**
In
accordance with ASC 820, *Fair Value Measurements and Disclosures*, fair value is defined as the exit price, or the amount that
would be received for the sale of an asset or paid to transfer a liability in an orderly transaction between market participants as of
the measurement date.
The
guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes
the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs include those that
market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent
of the Company. Unobservable inputs are inputs that reflect the Companys assumptions about the factors that market participants
would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
| 
| Level
1: Quoted market prices in active markets for identical assets or liabilities. | |
| F-14 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
| 
| Level
2: Inputs other than Level 1 that are observable, either directly or indirectly, such as
quoted prices for similar assets or liabilities; quoted prices in markets that are not active;
or model-derived valuations. All significant inputs used in the Companys valuations
are observable or can be derived principally from or corroborated with observable market
data for substantially the full term of the assets or liabilities. Level 2 inputs also include
quoted prices that were adjusted for security-specific restrictions which are compared to
output from internally developed models such as a discounted cash flow model. | |
| 
| Level
3: Unobservable inputs that are supported by little or no market activity and that are significant
to the fair value of the assets or liabilities. | |
The
carrying amounts of financial instruments carried at cost, including cash, accounts receivables and accounts receivable related
party, trade payables advances and notes payables and notes payable related party approximate their fair value due to the short-term
maturities of such instruments.
The
categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to
the fair value measurement.
****
**Warrants**
****
The
Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrants
specific terms and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (ASC 480)
and ASC 815, Derivatives and Hedging (ASC 815). The assessment considers whether the warrants are freestanding financial
instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements
for equity classification under ASC 815, including whether the warrants are indexed to the Companys own ordinary shares and whether
the warrant holders could potentially require net cash settlement in a circumstance outside of the Companys control,
among other conditions for equity classification. Finally, the Company determines if the warrants meet the definition of a derivative
based on their contractual terms. This assessment, which requires the use of professional judgment, is conducted at the time of warrant
issuance, as of each subsequent quarterly period end date while the warrants are outstanding and at interim dates if circumstances warrant
such analysis.
For
issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component
of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification,
the warrants are required to be recorded at their initial fair value on the date of issuance, and at each balance sheet date thereafter.
Changes in the estimated fair value of the liability classified warrants are recognized as a non-cash gain or loss on theconsolidatedstatements
of operations.The Company also evaluates if changes in contractual terms or other considerations would result in the reclassification
of outstanding warrants from liabilities to stockholders equity (or vice versa).
| F-15 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
**Revenue
Recognition**
The
Company recognizes revenue in accordance with ASC 606*, Revenue from Contracts with Customers*. All revenue is generated from contracts
with customers. The Company recognizes revenue when services are performed for the customer in an amount, referred to as the transaction
price, that reflects the consideration to which the Company is expected to be entitled in exchange for those services. The Company determines
revenue recognition utilizing the following five steps: (i) identification of the contract with a customer; (ii) identification of the
performance obligations in the contract (promised services that are distinct); (iii) determination of the transaction price; (iv) allocation
of the transaction price to the performance obligations; and (v) recognition of revenue when, or as, the Company transfers control of
the service for each performance obligation.
The
Companys performance obligations are established when a customer submits a purchase order notification and the Company accepts
the order. The Company identifies performance obligations as the delivery of the requested service at the location specified in the customers
contract and/or purchase order. Revenue from sales of services is recognized at the point in time when the Company transfers control
to the customer, typically at the time when the services are performed in full, at which time there are no further performance obligations
remaining.
The
Companys contracts with customers consist of one performance obligation, which is the performance of services. The Companys
contracts have no financing elements. Payment terms are generally less than 90 days and have no further contract asset or liability obligations
once control of the service is transferred to the customer. Revenue is recorded in the amount of consideration the Company expects to
receive for the sale of the service.
The
Company utilizes independent contractors and third-party carriers to perform transportation services in connection with its SemiCab business.
In accordance with ASC Topic 606, Revenue Recognition: Principal Agent Considerations, management evaluates the terms of agreements with
customers and vendors to determine whether it acts as principal or agent in each arrangement.
This
assessment focuses on whether control of the transportation service is obtained prior to transferring the service to the customer. Based
on this evaluation of the control model, management has concluded that it acts as the principal and, accordingly recognizes revenue on
a gross basis. In the event the Company acts as an agent, such revenue will be recognized net of the cost of purchased transportation.
All
revenue earned from contracts are presented net of discounts, allowances, and applicable taxes
| F-16 | |
****
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
****
**Share-Based
Compensation**
The
Company has granted stock options, warrants, restricted stock awards and restricted stock units to employees, non-employee consultants
and non-employee members of its board of directors. The Company also has an equity incentive plan that provides for the issuance of equity
incentive awards, such as stock options, warrants, stock appreciation rights, stock awards, restricted stock, stock units, performance
awards and other stock or cash-based awards to the Companys employees, officers, directors, consultants, agents, advisors and
independent contractors.
The
Company measures the compensation cost associated with all share-based payments based on grant date fair values. The fair value of each
stock option and stock purchase right is estimated on the date of grant using an option pricing model that meets certain requirements.
The Company generally uses the Black-Scholes option pricing model to estimate the fair value of its stock options and stock purchase
rights. The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by the Companys
stock price and several assumptions, including expected volatility, expected term, risk-free interest rate and expected dividends.
For
grants of stock options, the Company uses a blend of historical and implied volatility for traded options on its stock to estimate the
expected volatility assumption required in the Black-Scholes model. The Companys use of blended volatility estimates in computing
the expected volatility assumption for stock options is based on its belief that while the implied volatility is representative of expected
future volatility, the historical volatility over the expected term of the award is also an indicator of expected future volatility.
The Company utilizes a blended volatility estimate that consists of implied volatility and historical volatility in order to estimate
the expected volatility assumption of the Black-Scholes model.
The
expected term of stock options granted is estimated using historical experience. The risk-free interest rate assumption is based on observed
interest rates appropriate for the expected terms of the Companys stock options and stock purchase rights. The dividend yield
assumption is based on the Companys history and expectation of no dividend payouts. The Company estimates forfeitures at the time
of grant and revises these estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company
estimates its forfeiture rate assumption for all types of share-based compensation awards based on historical forfeiture rates related
to each category of award.
Compensation
costs associated with grants of restricted stock awards and restricted stock units are measured at fair value, which has historically
been the closing price of the Companys common stock on the date of grant.
| F-17 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
The
Company recognizes share-based compensation expense over the requisite service period of each individual award, which generally equals
the vesting period, using the straight-line method for awards that contain only service conditions. For awards that contain performance
conditions, the Company recognizes the share-based compensation expense on a straight-line basis for each vesting tranche, when achievement
of that tranche is considered probable.
The
Company evaluates the assumptions used to value stock awards on the grant date. If there are any modifications or cancellations of the
underlying unvested securities, the Company may be required to accelerate, increase or cancel any remaining unearned share-based compensation
expense.
****
**Income
Taxes**
****
The
Company
follows
the provisions
of FASB
ASC 740,
*A**ccounting
for Income
Taxes* (ASC 740). Under
the asset
and liability
method
of ASC
740, deferred
tax assets
and liabilities
are recognized
for the
future
tax consequences
attributed
to differences
between
the financial
statement
carrying
amounts
of existing
assets
and liabilities
and their
respective
tax base.
Deferred tax assets
and liabilities
are measured
using
enacted
tax rates expected
to apply
to taxable
income
in the
years in which
those
temporary
differences
are expected
to be recovered
or settled.
Under ASC
740, the
effect on deferred
tax assets
and liabilities
of a change
in tax rates
is recognized
in income
in the
period
that includes
the enactment
date. If it
is more
likely
than not
that some
portion
of a deferred
tax asset will
not be
realized, a valuation
allowance
is recognized.
The
Company recognizes a liability for uncertain tax positions. An uncertain tax position is defined as a position in a previously filed
tax return or a position expected to be taken in a future tax return that is not based on clear and unambiguous tax law and that is reflected
in measuring current or deferred income tax assets and liabilities for interim or annual periods. The Company may recognize the tax benefit
from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The Company measures the tax benefits recognized based on the largest benefit
that has a greater than 50% likelihood of being realized upon ultimate resolution.
As
of December 31, 2025 and 2024, there were no uncertain tax positions that resulted in any adjustment to the Companys provision
for income taxes. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes.
The Company currently has no liabilities recorded for accrued interest or penalties related to uncertain tax provisions.
In December 2023, the FASB issued
Accounting Standards Update (ASU) 2023-09, *Income Taxes (Topic 740): Improvements to Income Tax Disclosures*, which
is intended to enhance the transparency and decision usefulness of income tax disclosures. The standard requires, among other things,
enhanced rate reconciliation disclosures, disaggregation of income taxes paid by jurisdiction, and disaggregation of income (loss) from
continuing operations before income tax expense (benefit) between domestic and foreign jurisdictions. The Company adopted ASU 2023-09
effective January 1, 2025 on a prospective basis. The adoption of this standard did not have an impact on the Companys consolidated
financial statements but resulted in expanded income tax disclosures in the accompanying notes.
**Net
Loss Per Common Share**
****
Net
loss available to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average
number of shares that were outstanding during the period. Diluted net loss available to common stockholders reflects the potential dilution
that could occur if securities or other contracts to acquire common stock were exercised or converted into common stock. Potentially
dilutive securities are excluded from the diluted net loss available to common stockholders computation in loss periods as their effect
would be anti-dilutive.
****
| F-18 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
**Foreign
Currency Translation**
****
The
functional currency of the Company and its subsidiaries is the U.S. dollar, except for SMCB, whose functional currency is the Indian
rupee.
The
financial statements of SMCB are translated into U.S. dollars for consolidation purposes. Assets and liabilities are translated at the
exchange rates in effect at the balance sheet date, while revenues and expenses are translated at the average exchange rates during the
reporting period. Equity transactions are translated using historical exchange rates. Resulting translation adjustments are recorded
in accumulated other comprehensive income (loss) within shareholders equity.
**Recent
Accounting Pronouncements**
In
May 2025, the FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810). This ASU provides that a reporting
entity involved in a business combination effected primarily by the exchange of equity interests must consider the factors in ASC 805-10-55-12
through 55-15 to determine which entity is the accounting acquirer regardless of whether the legal acquiree is a Variable Interest Entity
(VIE). The amendments in ASU 2025-03 must be applied prospectively to any business combination that occurs after the initial
adoption date. ASU 2025-03 is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal
years. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements
and related disclosures.
In
May 2025, the FASB issued ASU 2025-04, Compensation Stock Compensation (Topic 718) and Revenue from Contracts with Customers
(Topic 606), which clarifies the guidance in both ASC 718 and ASC 606 on the accounting for share-based payment awards that are granted
by an entity as consideration payable to its customer. The ASU is intended to reduce diversity in practice and improve existing guidance,
primarily by revising the definition of a performance condition and eliminating a forfeiture policy election for service
conditions associated with share-based consideration payable to a customer. In addition, the ASU clarifies that the guidance in ASC 606
on the variable consideration constraint does not apply to share-based consideration payable to a customer regardless of whether
an awards grant date has occurred (as determined under ASC 718). ASU 2025-04 is effective for fiscal years beginning after
December 15, 2026, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating
the impact of this standard on its consolidated financial statements and related disclosures.
| F-19 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
In
July 2025, the FASB issued ASU 2025-05, Financial Instruments Credit Losses (Topic 326), which provides a practical
expedient for measuring expected credit losses on current receivables and contract assets arising under Topic 606, Revenue from
Contracts with Customers. The ASU allows entities to assume that the macroeconomic conditions existing at the balance sheet date
will remain unchanged over the remaining life of those assets. The amendments are effective for fiscal years beginning after
December 15, 2025, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently
evaluating the impact of this standard on its consolidated financial statements and related disclosures.
In
August 2025, the FASB issued ASU 2025-06, Intangibles Goodwill and Other Internal-Use Software (Subtopic 350-40). This
ASU simplifies the accounting for costs incurred in the development of internal-use software by removing the concept of multiple project
stages. Under the new guidance, capitalization begins when management authorizes and commits funding to the project and it is probable
that the project will be completed and the software placed into service. The amendments are effective for annual reporting periods beginning
after December 15, 2027, and interim periods within those years. Early adoption is permitted. The Company is currently evaluating the
impact of this standard on its consolidated financial statements and related disclosures.
In
September 2025, the FASB issued ASU 2025-07, Derivatives and Hedging (Topic 815). This ASU clarifies the scope of derivative accounting
for certain contracts and provides guidance on share-based, non-cash consideration received from a customer under Topic 606. The amendments
expand a scope exception for contracts whose underlying is based on an entitys own operations or activities, reducing the number
of arrangements that qualify as derivatives. The ASU also clarifies the accounting for share-based consideration received from a customer.
The amendments are effective for fiscal years beginning after December 15, 2026, including interim periods within those years. Early
adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related
disclosures.
In
December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements (ASU 2025-11). The purpose
of this ASU is to improve the guidance of Topic 270, Interim Reporting, by providing clarity on the current interim reporting requirements.
This amendment also provides additional guidance on what disclosures should be provided in interim reporting periods. The amendments
in this ASU also add to Topic 270 a principle that requires entities to disclose events since the end of the last annual reporting period
that have a material impact on the reporting entity. The amendments in this ASU are effective for all public companies for interim reporting
periods within annual reporting periods beginning after December 31, 2027. Early adoption is permitted. The amendments in this ASU can
be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements. The Company is
currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.
The
Company reviewed all other significant newly-issued accounting pronouncements and concluded that they either are not applicable to the
Companys operations or that no material effect is expected on its consolidated financial statements as a result of future adoption.
| F-20 | |
****
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
**Note
5 Acquisition of SemiCab, Inc.s Assets**
****
On
June 11, 2024, the Company, its wholly-owned subsidiary, SemiCab Holdings, SemiCab, Inc., Ajesh Kapoor and Vivek Sehgal entered into
an asset purchase agreement pursuant to which the Company agreed to purchase substantially all of the assets, and assume certain specified
liabilities, of SemiCab, Inc. On July 3, 2024 (the Acquisition Date), the parties completed the acquisition and, on that
date, the Company issued 3,209 shares of the Companys common stock and a 20% membership interest in SemiCab Holdings to SemiCab,
Inc. The Company acquired SemiCab, Inc.s business to diversify the Companys business.
Pursuant
to the terms of the asset purchase agreement that the Company entered into on June 11, 2024, the Company entered into an option agreement
that granted SemiCab Holdings the right to acquire all of the issued and outstanding equity securities of SMCB, which is a subsidiary
of SemiCab, Inc., for 1,605 shares of the Companys common stock. The Company did not exercise this right and the option agreement
expired unexercised on August 31, 2024.
In
connection with the asset purchase agreement, effective July 3, 2024, SemiCab Holdings entered into employment agreements with Ajesh
Kapoor and Vivek Sehgal. Mr. Kapoors agreement is for a term of three years with an annual base salary of $140,000for 2024,
$240,000for 2025, and $300,000for 2026. Mr. Sehgals agreement is for a term of three years with an annual base salary
of $105,000for 2024, $210,000for 2025, and $240,000for 2026. Both executives salaries are subject to annual
review by the board of managers of SemiCab Holdings.
****
The
value of the consideration paid by the Company to SemiCab, Inc. for the SemiCab business was $983,000. The 3,209 shares issued to SemiCab,
Inc. were valued at $494,000 on the Acquisition Date based on the trading price of the Companys common stock on the Acquisition
Date discounted for a lack of marketability. The Company recognized a non-controlling interest at fair value as of the Acquisition Date
in the amount of $74,000,representingthe value of the 20% membership interest in SemiCab Holdings that was issued to SemiCab,
Inc. in the transaction. The 20% membership interest was valued at the Acquisition Date based on the fair value of the implied value
of SemiCab Holdings based on the value of the Companys common stock issued on the Acquisition Date. The Company recorded a measurement
period adjustment during the fourth quarter of 2024 that reduced the value of finite lived intangible assets acquired in the transaction
by $1,050,000. This had the effect of increasing goodwill by $1,050,000.
| F-21 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
The
following table presents the allocation of the consideration transferred to the assets acquired and liabilities assumed based on their
fair values:
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed
| 
| | 
| | | |
| 
Consideration: | | 
| | | |
| 
Equity consideration | | 
$ | 494,000 | | |
| 
Fair value of non-controling interest | | 
| 74,000 | | |
| 
Total equity consideration | | 
| 568,000 | | |
| 
Effective extinguishment of advances to SemiCab, Inc. | | 
| 415,000 | | |
| 
Total consideration | | 
$ | 983,000 | | |
| 
| | 
| | | |
| 
Identifiable net assets acquired: | | 
| | | |
| 
Cash | | 
$ | 17,000 | | |
| 
Accounts receivable | | 
| 193,000 | | |
| 
Prepaid expenses and other current assets | | 
| 13,000 | | |
| 
Property and equipment, net | | 
| 3,000 | | |
| 
Other non-current assets | | 
| 14,000 | | |
| 
Customer relationships (nine9
year estimated useful life) | | 
| 25,000 | | |
| 
Trade name (nine9 year estimated useful life) | | 
| 25,000 | | |
| 
Developed technology (six6 year estimated useful life) | | 
| 325,000 | | |
| 
Accounts payable and accrued expenses | | 
| (2,679,000 | ) | |
| 
Merchant cash advances payable | | 
| (631,000 | ) | |
| 
Notes payable to related parties | | 
| (650,000 | ) | |
| 
Other current liabilities | | 
| (50,000 | ) | |
| 
Net assets acquired | | 
$ | (3,395,000 | ) | |
| 
Goodwill | | 
$ | 4,378,000 | | |
**Note
6 Property and Equipment, Intangible Assets and Goodwill**
A
summary of the Companys property and equipment at December 31, 2025 and 2024 is as follows:
Schedule of Property and Equipment
| 
| | 
Useful | | 
December 31, | | | 
December 31, | | |
| 
| | 
Life | | 
2025 | | | 
2024 | | |
| 
Computer
and office equipment | | 
3-5 years | | 
$ | 64,000 | | | 
$ | 8,000 | | |
| 
Less:
accumulated depreciation | | 
| | 
| (42,000 | ) | | 
| (6,000 | ) | |
| 
Property
and equipment net | | 
| | 
$ | 22,000 | | | 
$ | 2,000 | | |
Depreciation
expense was $8,000 and $0 for the year ended December 2025 and December 31, 2024, respectively.
| F-22 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
A
summary of the Companys intangible assets at December 31, 2025 and 2024 is as follows:
Schedule of Intangible Assets
| 
| | 
Useful | | 
December 31, | | | 
December 31, | | |
| 
| | 
Life | | 
2025 | | | 
2024 | | |
| 
Customer
relationships of SemiCab, Inc. | | 
9 years | | 
$ | 25,000 | | | 
$ | 25,000 | | |
| 
Trade name of SemiCab, Inc. | | 
9 years | | 
| 25,000 | | | 
| 25,000 | | |
| 
Developed technology of SemiCab, Inc. | | 
6 years | | 
| 325,000 | | | 
| 325,000 | | |
| 
Customer relationships of SMCB | | 
9 years | | 
| 1,008,000 | | | 
| - | | |
| 
Reacquired rights of SMCB | | 
5 years | | 
| 294,000 | | | 
| - | | |
| 
Trade name of SMCB | | 
5 years | | 
| 180,000 | | | 
| - | | |
| 
Internal
use software | | 
5
years | | 
| 419,000 | | | 
| - | | |
| 
Intangible
assets gross | | 
| | 
| 2,276,000 | | | 
| 375,000 | | |
| 
Less:
accumulated amortization | | 
| | 
| (271,000 | ) | | 
| (30,000 | ) | |
| 
Intangible
assets net | | 
| | 
$ | 2,005,000 | | | 
$ | 345,000 | | |
Amortization
expense was $241,000 and
$30,000 for
the years ended December 31, 2025 and 2024, respectively.
During
the year ended on December 31, 2024, the Company tested the recorded amount of goodwill from the acquisition of SemiCab, Inc.s
business for impairment on December 31, 2024 to see if the carrying amount of goodwill exceeded its carried value. The Company calculated
a market-based valuation utilizing inputs classified as level 3 on the fair value hierarchy by multiplying one by projected 2025 revenue
for the SemiCab business. As a result of this test, the Company recorded an impairment charge of $3,592,000 during the year ended December
31, 2024 and the balance of the Companys goodwill on December 31, 2024 was $786,000.
****
On
May 2, 2025, SemiCab Holdings acquired 99.99% of the equity shares of SMCB from SemiCab, Inc. In connection with the acquisition, the
Company recorded additional goodwill in the amount of $1,896,000. As a result, the balance of the Companys goodwill was $2,682,000
on December 31, 2025.
During
the year ended on December 31, 2025, the Company tested the recorded amount of goodwill from the acquisition of SemiCab, Inc.s
business and SMCB as of December 31, 2025 for impairment to see if the carrying amount of goodwill exceeded its carried value. As a result
of this test, the Company determined that no impairment of goodwill was needed to be recorded as of December 31, 2025.
The
following table presents the changes in the value of the goodwill recognized in connection with the acquisition of SemiCab, Inc. business:
Schedule of Changes in Goodwill
| 
Balance at January 1, 2024 | | 
$ | -0- | | |
| 
Goodwill from acquisition of SemiCab, Inc.s
business on July 3, 2024 | | 
| 4,378,000 | | |
| 
Impairment of goodwill | | 
| (3,592,000 | ) | |
| 
Balance at December 31, 2024 | | 
$ | 786,000 | | |
| 
Goodwill from acquisition of SMCB on May
2, 2025 | | 
| 1,896,000 | | |
| 
Impairment of goodwill | | 
| -0- | | |
| 
Balance at December
31, 2025 | | 
$ | 2,682,000 | | |
| F-23 | |
****
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
****
**Note
7 Notes Payable to Related Parties**
Notes
payable to related parties consist of the following:
Schedule of Notes Payable to Related Parties
| 
| | 
December 31, | | | 
December 31, | | |
| 
| | 
2025 | | | 
2024 | | |
| 
Loans with related parties assumed
in acquisition of SemiCab business | | 
| 550,000 | | | 
| 650,000 | | |
| 
Promissory note issued
for acquistion of SMCB | | 
| 1,750,000 | | | 
| - | | |
| 
Total | | 
$ | 2,300,000 | | | 
$ | 650,000 | | |
| 
| | 
| | | | 
| | | |
| 
Less: current portion of notes payable to related
parties | | 
| 2,300,000 | | | 
| 265,000 | | |
| 
| | 
| | | | 
| | | |
| 
Notes payable to related parties, net of current
portion | | 
| - | | | 
| 385,000 | | |
**Loans
With Related Parties Assumed in Acquisition of SemiCab Business**
SemiCab
Holdings assumed several unsecured loans from Ajesh Kapoor and Vivek Sehgal in the acquisition of SemiCab business. The Company incurred
interest expense on these loans of $59,000 and $36,000 for the years ended December 31, 2025, and December 31, 2024, respectively. In
relation to these loans, the Company did not have any accrued interest payable as of December 31, 2025, and had accrued interest payable
of $6,000 as of December 31, 2024, that was included within accrued expenses in the Companys consolidated balance sheets.
The
terms of each loan and the balances as of December 31, 2025 and 2024 are summarized in the table below:
Schedule of Notes Payable to Related Parties Loan
| 
| | 
Issue | | 
Maturity | 
| 
Interest | | | 
Outstanding Principal | | |
| 
Note Holder | | 
Date | | 
Date | 
| 
Rate | | | 
December
31, 2025 | | | 
December
31, 2024 | | |
| 
Ajesh Kapoor | | 
7/10/2021 | | 
7/10/2026 | 
| 
| 9 | % | | 
$ | 150,000 | | | 
$ | 150,000 | | |
| 
Ajesh Kapoor | | 
8/27/2021 | | 
8/26/2026 | 
| 
| 9 | % | | 
| 235,000 | | | 
| 235,000 | | |
| 
Vivek Sehgal | | 
4/17/2023 | | 
10/13/2023 | 
| 
| 10 | % | | 
| - | | | 
| 50,000 | | |
| 
Ajesh Kapoor | | 
5/5/2023 | | 
5/4/2024 | 
| 
| 10 | % | | 
| - | | | 
| 50,000 | | |
| 
Ajesh
Kapoor | | 
5/17/2023 | | 
2/1/2026 | 
| 
| 10 | % | | 
| 165,000 | | | 
| 165,000 | | |
| 
Total | | 
| | 
| 
| 
| | | | 
$ | 550,000 | | | 
$ | 650,000 | | |
On
October 8, 2025, the Company repaid the loan from Vivek Sehgal issued on April 17, 2023 for $50,000 and the loan from Ajesh Kapoor issued
on May 5, 2023 for $50,000.
Mr.
Kapoor serves as the Chief Executive Officer and Chief Technology Officer of SemiCab Holdings and as a member of the Companys
Board of Directors, and Mr. Sehgal serves as the Chief Product Officer of SemiCab Holdings.
**Promissory
Note Issued for Acquisition of SMCB**
On
May 2, 2025, the Company and SemiCab Holdings acquired 99.99% of the equity shares of SMCB from SemiCab, Inc. pursuant to which, in part,
the Company issued a promissory note to SemiCab, Inc. in the principal amount of $1,750,000. A discussion of this transaction and the
terms of the promissory note is set forth herein in *Note 18 Acquisition of SMCB*.
| F-24 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
**Note
8 Credit Facilities and Other Financing Arrangements**
****
**Oxford
Credit Facility**
On
March 28, 2024, the Company entered into a loan agreement and related revolving credit note with Oxford Commercial Finance (Oxford).
The agreement was for a two-year term and established a secured asset-backed revolving credit facility that was comprised of a maximum
$2,000,000revolving 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 Companys obligations under the credit agreement were secured
by a continuing security interest in all property of each Loan Party, subject to certain excluded collateral.
On
October 17, 2024, the Company terminated the loan agreement and note and paid Oxford a termination fee of $40,000. As of the date of
termination, the Company had no outstanding amounts owed to Oxford. During the year ended December 31, 2024, the Company incurred interest
expense of $77,000 for financing costs associated with the credit agreement.
**Agile
Capital Merchant Cash Advance**
In
connection with the acquisition of SemiCab, Inc.s business, the Company assumed a merchant cash advance that was payable to Agile
Capital Funding, LLC that had been incurred under a financing agreement that SemiCab, Inc. had entered into on March 22, 2024. The initial
amount borrowed was $315,000, with net proceeds to SemiCab, Inc. in the amount of $300,000. Repayment terms consisted of weekly payments
in the amount of $16,200 for 28 weeks for a total repayment of $453,600. The effective interest rate for the borrowings is15% per
year. The Company incurred $105,400 of interest expense under this financing agreement during the year ended December 31, 2024. As of
December 31, 2024, the merchant cash advance had been repaid in full.
**Cedar
Advance Merchant Cash Advance**
In
connection with the acquisition of SemiCab, Inc.s business, the Company assumed a merchant cash advance that was payable to Cedar
Advance, LLC that had been incurred under a financing agreement that SemiCab, Inc. had entered into on May 8, 2024. The initial amount
borrowed was $215,000, with net proceeds to SemiCab, Inc. in the amount of $204,300. Repayment terms consisted of weekly payments in
the amount of $11,100 for 28 weeks for a total repayment of $312,000. The effective interest rate for the borrowings is18% per
year. The Company incurred $88,800 of interest expense under this financing agreement during the year ended December 31, 2024. As of
December 31, 2024, the merchant cash advance had been repaid in full.
****
| F-25 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
****
**Note
9 Commitments and Contingencies**
The
Company is subject to claims, suits and other proceedings from time to time in the ordinary course of business that could result in fines,
civil penalties, or other adverse consequences. In accordance with the provisions of ASC Topic 450,*Contingencies,* the
Company records a liability when it believes that it is probable that a loss has been incurred and the amount can be reasonably estimated.
If the Company determines that it is probable that a loss has been incurred and the loss or range of loss can be estimated, the Company
discloses the estimated amount of the loss. The Company evaluates developments in its legal matters that could affect the amount of liability
that has been previously accrued and makes adjustments as appropriate. Significant judgment is required to determine both likelihood
of there being and the estimated amount of a loss related to such matters.
****
**Efficient
Capital Labs Settlement Agreement**
****
On
May 18, 2023, SemiCab, Inc. entered into an installment business loan agreement with Efficient Capital Labs, Inc. (ECL)
pursuant to which SemiCab, Inc. borrowed the principal amount of $1,000,000. Repayments were originally scheduled to begin in June 2023
in equal installments of $91,667for 13 months with an effective interest rate of 17.97%. The loan had a maturity date of May
17, 2024. On May 18, 2024, SemiCab, Inc. defaulted on the loan for non-payment.
On
May 18, 2024, SemiCab, Inc. entered into a settlement agreement with ECL pursuant to which SemiCab, Inc. agreed to pay ECL $946,666 as
follows: (i) $25,000 on or before May 20, 2024; (ii) $75,000 on or before June 3, 2024; and (iii) $84,666 on or before the first business
day of each of the following 10 calendar months starting on July 1, 2024.
In
connection with the acquisition of the SemiCab, Inc.s business, the Company assumed this settlement liability. The final payment
of the settlement was made during the year ended December 31, 2025. Accordingly, there was no unpaid balance at December 31, 2025. As
of December 31, 2024, the remaining unpaid balance of the settlement was $325,000 and was included as a component of accrued expenses
on the Companys consolidated balance sheets.
****
**Derivative
Litigation**
On
December 21, 2023, Ault Lending, LLC (Ault Lending), a wholly-owned subsidiary of Ault Alliance, Inc., a former shareholder
of the Company, filed a derivative shareholder action in Delaware Chancery Court against the Company, its board of directors, Stingray
Group, LLC (Stingray Group) and Regalia Ventures, LLC (Regalia Ventures) for alleged breach of fiduciary
duty in approving a recent above-market private placement equity transaction. The complaint alleged that the Company and its board of
directors followed an inadequate process in evaluating the private placement transaction that the Company completed in November 2023
and that the Company and its board of directors entered into the transaction with an intent to dilute Aults 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 Companys
sale of shares to Stingray Group and Regalia Ventures; and (iii) damages and attorneys fees. On April 30, 2025, Ault Lending filed
a motion with the court requesting that the claims be dismissed without prejudice and on that same date, the court approved the dismissal
of the claims without prejudice.
| F-26 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
****
**OAC
Flatiron & OAC Adelphi Litigation**
On
August 23, 2023, MICS NY entered into an Agreement of Lease (the Lease Agreement) with OAC 111 Flatiron, LLC and OAC Adelphi,
LLC (the Landlord), pursuant to which MICS NY agreed to lease approximately10,000square feet of ground floor
retail space and a portion of the basement underneath the ground floor retail space in the property located at 111 West 24thStreet,
New York, New York (the Premises).
During
the year ended December 31, 2024, the Company abandoned its plans to continue use of the leased space and exercised its early termination
provision of the Lease Agreement which was not accepted by the Landlord. Due to the abandonment of the lease, all assets related to the
lease were impaired. Assets including security deposits, rent deposits and right of use assets of approximately $3,878,000were
written off during the year ended December 31, 2024.
On
July 26, 2024, the Landlord filed a civil action in the Supreme Court of the State of New York against MICS NY and the Company (the
Defendants) for alleged breach of lease, seeking monetary damages including unpaid rent, future unpaid rent, and other expenses
related to the lease. The complaint alleged the Defendants breached the lease in various material respects.
On
September 25, 2024, the Company entered into a settlement agreement for a full release and dismissal of the complaint within five business
days of the Companys payment of $250,000. Pursuant to the settlement agreement, the Company made the first payment of $150,000
on September 25, 2024 and a final payment of $100,000 on October 25, 2024. The remaining lease liability was written off upon settlement,
resulting in a loss upon termination of the lease of $4,000, net of the write off of the related lease asset discussed above. On October
29, 2024, the Landlord filed a discontinuance with prejudice.
**Blue
Yonder Litigation**
Pursuant
to the asset purchase agreement with SemiCab, Inc., the Company assumed a judgement against SemiCab, Inc. regarding damages resulting
from contract breach for IT subscription-based services. On March 28, 2020, SemiCab, Inc. entered into a service contract and agreement
with Blue Yonder, Inc. (Blue Yonder) for certain IT subscription-based services. The original term of the agreement was
for three years, at a price of $100,000per year, for a total of $300,000.
| F-27 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
On
June 21, 2023, Blue Yonder filed a lawsuit claiming damages in the amount of $275,000with 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 $175,000and
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 $225,000by 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 $509,119beginning
January 1, 2025. As of the date of this filing, none of the scheduled payments have been made. A liability of $506,000has been
recorded as a component of accrued expenses on the accompanying consolidated balance sheets.
****
On
February 11, 2025, Blue Yonder filed a civil action in the Superior Court of the State of Arizona against the Company for breach of contract
and to enforce a stipulated judgment entered against SemiCab, Inc. in connection with the liabilities related to Blue Yonder that the
Company assumed when it acquired SemiCab, Inc.s business. Blue Yonder alleges that, because the Company assumed these liabilities,
Blue Yonder can enforce the judgment against the Company. The judgment was in the amount of $509,119. On August 1, 2025, the Company
filed an answer to the complaint and counterclaims against Blue Yonder for breach of contract. On January 30, 2026, the Court granted
Blue Yonders motion for judgment on the pleadings. The outcome of this matter is uncertain.
****
**Note
10 Stock Compensation Expense**
****
**Equity
Incentive Plan**
On
April 12, 2022, the Companys board of directors approved The Singing Machine Company, Inc. 2022 Equity Incentive Plan. The equity
plan provides for the issuance of equity incentive awards, such as stock options, stock appreciation rights, stock awards, restricted
stock, stock units, performance awards and other stock or cash-based awards to the Companys employees, officers, directors, consultants,
agents, advisors and independent contractors.
The
number of shares of common stock initially available for issuance under the plan was 1,167 shares of common stock and thereafter, beginning
in 2023, an annual increase would occur as of the first day of the Companys applicable fiscal year equal to the lesser of: (i)
five percent of the outstanding shares of common stock calculated on a fully diluted basis as of the end of the Companys immediately
preceding fiscal year; (ii) 167 shares; and (iii) a lesser amount as determined by the Companys board of directors. The shares
of common stock subject to stock awards granted under the equity plan that lapse, terminate, expire prior to exercise, are canceled,
or are forfeited, become available for issuance again under the equity plan. Shares subject to a stock award under the equity plan do
not become available for issuance or delivery again under the equity plan if such shares are: (i) shares tendered by a participant or
retained by the Company as full or partial payment to the Company for the exercise or purchase price of an award; or (ii) shares used
to satisfy tax withholding obligations in connection with an award.
| F-28 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
The
Companys board of directors may amend, suspend or terminate the plan or a portion of it at any time; provided, however, that to
the extent required by applicable law, regulation or stock exchange rule, stockholder approval will be required for any amendment to
the plan. The plan is scheduled to terminate automatically in 10 years following the earlier of: (i) the date the Companys board
of directors adopted the plan; and (ii) the date the stockholders approved the plan.
On
November 20, 2025, the plan was amended to provide that the number of shares of common stock available for issuance under the plan is
5,000,000 and that, commencing January 1, 2025, on the first day of each of the Companys fiscal years thereafter, this number will be increased
by the lesser of: (i) 15% of the outstanding common stock on a fully diluted basis as of the end of the Companys immediately preceding fiscal
year, or (ii) an amount determined by the board of directors, provided that any shares from any such increases in previous years that
are not actually issued shall continue to be available for issuance under the plan. Accordingly, as of December 31, 2025, there were
5,000,000 shares of common stock authorized for issuance under the plan.
Of
this amount, awards representing 283,666 shares of common stock were outstanding as of December 31, 2025 and. On January 1, 2026, the
number of shares available for issuance under the plan increased to 5,750,000 in accordance with the terms of the plan.
The
Company granted awards representing 283,316 shares of common stock during the year ended December 31, 2025. The Company did not grant
any awards for shares of common stock during the year ended December 31, 2024. There were 33 shares forfeited during the year ended December
31, 2024. No shares of common stock were forfeited during the year ended December 31, 2025. There were 283,666 and 351 shares of common
stock underlying share-based awards that were outstanding at December 31, 2025 and 2024, respectively. As of December 31, 2025, 4,716,334
shares remained available for issuance under the plan.
Share-based
compensation expense includes the estimated fair value of share-based awards granted, amortized on a straight-line basis over the requisite
service period for the entire portion of the award. For the years ended December 31, 2025 and 2024, the Company recognized
share-based compensation expense of $90,000 and $69,000, respectively.
As
of December 31, 2025, there was an unrecognized expense of $223,000 remaining on stock options currently vesting over time with approximate
weighted average of one year and eleven months remaining until these options are fully vested. The vested options as of December 31,
2025, had no intrinsic value.
As
of December 31, 2025, there was an unrecognized expense of $143,000 remaining on restricted stock awards currently vesting over time
with approximate weighted average of 3 years and 7 months remaining until these awards are fully vested.
**Other
Equity Compensation**
During
the years ended December 31, 2025 and 2024, the Company issued shares of its common stock as consideration for services rendered.
| F-29 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
During
the year ended December 31, 2025, the Company issued an aggregate of 162,882 shares of its common stock to three vendors in a non-cash
transaction as consideration for services rendered or to be rendered. The shares were valued at the closing price of the Companys
common stock on the respective measurement dates, resulting in a total fair value of $344,000, which was recognized as general and administrative
expenses in the accompanying consolidated statement of operations.
During
the year ended December 31, 2024, the Company issued an aggregate of 3,873 shares of its common stock to three vendors as consideration
for services rendered and issued 472 shares of common stock to Vivek Sehgal as bonus compensation earned under his employment agreement
with SemiCab Holdings. The Company recognized $478,000 of compensation expense related to these share issuances during the year ended
December 31, 2024, which was recorded as general and administrative expenses in the accompanying consolidated statement of operations.
**Note
11 Net Loss Per Share**
The
computations of basic and dilutive loss per share of commons stock outstanding for the year ended December 31, 2025 and 2024 are as follows:
Schedule of Basic and Diluted Income (Loss) Per Share
| 
| | 
Year Ended | | | 
Year Ended | | |
| 
| | 
December 31, 2025 | | | 
December 31, 2024 | | |
| 
Net loss available to common shareholders | | 
$ | (15,871,000 | ) | | 
$ | (23,257,000 | ) | |
| 
Basic and diluted weighted average of common stock outstanding | | 
| 2,475,293 | | | 
| 65,722 | | |
| 
Loss per common share | | 
| (6.41 | ) | | 
| (353.87 | ) | |
The
computations of the fully diluted weighted average number of shares of common stock outstanding for the years ended December 31, 2025
and 2024 are as follows:
Schedule of Diluted Weighted Average Number of Shares
| 
| | 
Year Ended | | | 
Year Ended | | |
| 
| | 
December 31, 2025 | | | 
December 31, 2024 | | |
| 
Basic weighted average common shares outstanding | | 
| 2,475,293 | | | 
| 65,722 | | |
| 
Effect of dilutive stock options and warrants | | 
| - | | | 
| - | | |
| 
Diluted weighted average of common shares outstanding | | 
| 2,475,293 | | | 
| 65,722 | | |
Basic
net loss per share is based on the weighted average number of shares of common stock outstanding during the period. Diluted net loss
per share reflects the potential dilution assuming shares of common stock underlying in-the-money options and warrants have been issued
upon the exercise of the options and warrants and the proceeds thereof were used to purchase shares of the Companys common stock
at the average market price during the period using the treasury stock method.
| F-30 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
For
the year ended December 31, 2025, 181,067 shares of common stock underlying stock options and 1,138,163 shares of common stock underlying
warrants were excluded from the calculation of diluted net loss per share as the result would have been anti-dilutive. For the year ended
December 31, 2024, 536 shares of common stock underlying stock options and 563,335 shares of common stock underlying warrants were excluded
from the calculation of diluted net loss per share as the result would have been anti-dilutive.
****
**Note
12 Securities Transactions**
**Regalia
Ventures Stock Repurchase Transaction**
On
November 1, 2024, the Company entered into a stock repurchase agreement with Regalia Ventures pursuant to which the Company agreed to
repurchase the 5,495 shares from Regalia Ventures at a price per share equal to the higher of: (i) the closing price of the common stock
on the last trading day immediately preceding the date of the repurchase agreement; or (ii) the highest volume weighted average price
(VWAP) of the common stock during a pricing period of 10 consecutive trading days prior to the date of the repurchase agreement.
The shares of common stock to be repurchased were originally issued to Regalia Ventures on November 21, 2023, pursuant to a certain stock
purchase agreement dated November 20, 2023. The Company recorded an accrued liability in the amount of the repurchase price, which was
$472,000, as of December 31, 2024 as there were no further conditions that needed to be satisfied prior to the closing date other than
the issuance of the promissory note and the delivery of the shares.
On
February 18, 2025, the date of the closing of the transaction, the Company issued a promissory note to Regalia Ventures in the amount
of $472,000, which was the principal amount of the purchase price. The note was due and payable on demand and accrued interest at the
rate of 10% per year. The Company incurred $1,000 for interest expense for the year ended December 31, 2025 related to this promissory
note. On February 27, 2025, the Company paid off the note in full. Regalia Ventures is owned and controlled by Jay B. Foreman, who served
as a member of the Companys board of directors until November 14, 2025.
**Stingray
Group Stock Repurchase Transaction**
****
On
December 3, 2024, the Company entered into a stock repurchase agreement with Stingray Group pursuant to which the Company agreed to repurchase
the 5,495 shares from Stingray Group at a price per share equal to the higher of: (i) the closing price of the common stock on the last
trading day immediately preceding the date of the repurchase agreement; or (ii) the highest VWAP of the common stock during a pricing
period of 10 consecutive trading days prior to the date of the repurchase agreement. The shares of common stock to be repurchased were
originally issued to the Stingray Group on November 21, 2023, pursuant to a certain stock purchase agreement dated November 20, 2023.
The Company recorded an accrued liability in the amount of the repurchase price, which was $286,000, as of December 31, 2024 as there
were no further conditions that needed to be satisfied prior to the closing date other than the issuance of the promissory note and the
delivery of the shares.
| F-31 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
On
February 18, 2025, the date of the closing of the transaction, the Company issued a promissory note to Stingray Group in the amount of
$286,000, which was the principal amount of the purchase price. The note was due and payable on demand and accrued interest at the rate
of 10% per year. The Company incurred $3,000 for interest expense for the year ended December 31, 2025 related to this promissory note.
On April 3, 2025, the Company paid off the note in full. Mathieu Peloquin is the Senior Vice-President, Marketing and Communications
of Stingray Group and served as a member of the Companys board of directors until October 6, 2025.
**October
2024 Private Placement**
**
On
October 22, 2024, the Company entered into a securities purchase agreement pursuant to which the Company agreed to issue and sell to
each purchaser: (i) an original issue discount senior secured note with a principal amount equal to such purchasers subscription
amount divided by 0.85, and (ii) a number of shares of the Companys common stock equal to (x) 11,500, multiplied by (y) such purchasers
subscription amount, and divided by (z) $2,000,000. No interest would accrue on the notes unless and until an event of default occurred,
upon which interest would accrue at a rate of 14% per year. The notes had a maturity date of January 22, 2025. 
The
Offering closed on October 24, 2024. At closing, the Company issued an aggregate of11,500shares of its common stock and notes
in the aggregate principal amount of $2,352,941 to the purchasers for total proceeds of $2,000,000net of original issue discount
of $352,941. The Company recorded amortization of original issue discount in the amount of $352,941 during the year ended December 31,
2024, which was recorded in interest expense in other expense in the Companys statement of operations. The 11,500 shares of common
stock were valued at $943,000 on the date of issuance and were recorded as a debt issuance cost, fully amortized to interest expense
during the year ended December 31, 2024. The Company repaid the notes in full during the 2024 year. Univest Securities served as the
placement agent in the offering and receivedseven percent of the gross proceeds received by the Company and reimbursement of the
legal fees of its counsel. 
**December
2024 Public Offering**
On
December 4, 2024, the Company entered into a securities purchase agreement in connection with a public offering of an aggregate of 21,000
shares of its common stock, pre-funded warrants to purchase up to 258,412 shares of common stock, Series A warrants to purchase up to
279,412 shares of common stock, and Series B warrants to purchase up to 279,412 shares of common stock. Each share of common stock, or
a pre-funded warrant in lieu thereof, was sold together with the accompanying warrants to purchase one share of common stock.
The
public offering price for each share of common stock and one accompanying Series A warrant and Series B warrants was $34.00.
The public offering price of each pre-funded warrant and one accompanying Series A warrant and Series B warrant was $32.00.
The exercise price of each pre-funded warrant was $2.00per
share. Each Series A warrant is exercisable for one share of common stock and had an initial exercise price equal to $34.00.
Each Series B warrant was exercisable for one share of common stock and had an initial exercise price equal to $68.00.
The Company received aggregate gross proceeds upon the closing of the offering of approximately $9,000,000,
before deducting placement agents fees and other offering expenses.
The
pre-funded warrants were immediately exercisable upon issuance and were exercisable at any time until all pre-funded warrants were
exercised in full. The Series A and B warrantswere exercisable only upon receipt of such shareholder approval as may be
required by the applicable rules and regulations of the Nasdaq Stock Market, LLC (the Nasdaq) to permit the exercise
of the Series A and B warrants,after which the Series A and B warrants became exercisable for a period of five years and two and one-half years, respectively. The pre-funded warrants and Series A and B warrants contain
standard adjustments to the exercise price, including for stock splits, stock dividends and pro rata distributions, and
customary terms regarding the treatment of the pre-funded warrants and the Series A and B warrants in the event of a fundamental
transaction, including but not limited to a merger or consolidation involving the Company, a sale of all or substantially
all of the assets of the Company, or a business combination resulting in any person acquiring more than 50% of the outstanding shares
of common stock of the Company. Additionally, the pre-funded warrants and Series A and B warrants include restrictions
on exercise in the event the purchasers beneficial ownership of the Companys common stock would exceed 4.99% of the
number of shares of common stock outstanding immediately after giving effect to the exercise.
The
Series A and B warrants include an exercise price adjustment feature upon shareholder approval, whereby the exercise price adjusted
to the greater of the lowest daily volume weighted average price during the reset period or the floor price, which is $6.844per share,
with a proportional increase in the number of warrant shares. The Series A and B warrants can be settled by a cash exercise or by cashless
exercise, and the Series B warrants specifically can be settled by way of an alternative cashless exercise after shareholder approval
is obtained, in which the Series B warrant holders can receive the same number of shares of common stock that would be issuable under
a cash exercise. Upon meeting certain stock price requirements, the Company has the right to redeem any outstanding Series A and Series
B warrants for $2.00per share, provided the holders do not elect to exercise prior to redemption.
The
Company assessed the Series A and B warrants under ASC 480 and ASC 815 and determined that the Series A and B warrants needed to be classifiedasliabilitiesas
they did not meet the requirements to be considered indexed to the Companys own stock, due to (a) the adjustment to the exercise
price tied to shareholder approval, and (b) the potential change in the settlement amount of the Series B warrants upon an alternative
cashless exercise election. Additionally, the Company concluded at issuance that it would not have sufficient authorized and available
shares of common stock to settle the Series A and B warrants. See *Note 13 Derivative Liability.*
At
inception, the estimated fair value of the Series A warrants was $5,900,000and the Series B warrants was $11,000,000, for a total
estimated fair value of $16,900,000. The total fair value exceeded the proceeds received in the offering by $8,000,000, which the Company
recorded as a loss upon issuance of warrants. The Company also expensed approximately $900,000of issuance costs incurred in the
offering, resulting in a total loss on issuance during the year ended December 31, 2024 of $8,889,000. The estimated fair values of the
Series A and B warrants have been recorded as a derivative liability at issuance and at December 31, 2024. In the Companys consolidated
statement of operations for the year ended December 31, 2024, the Company recognized a gain of $334,000for the change in the fair
value measurement of the warrant liability.
During
December 2024, the 258,412 pre-funded warrants were exercised in full, resulting in the Company receiving $500,000 in cash proceeds.
| F-32 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
On
January 13, 2025, the Companys stockholders approved the issuance of the Series A and B warrants, at which time all of the Series
A and B warrants became exercisable. This approval triggered an adjustment to the exercise price of the Series A warrants to $8.38. In
connection with this approval, the holders of the Series B Warrants exercised their warrants in full under the alternative cashless exercise
provision, resulting in the issuance of 1,910,975 shares of common stock and no additional proceeds received by the Company. The warrant
liability reflected on the Companys consolidated balance sheet at December 31, 2024 was reclassified to additional paid-in capital
on the Companys consolidated balance sheet at December 31, 2025. The Company recognized a loss of $6,468,000 during the year ended December 31, 2025 for the change in
the fair value measurement of the warrant liability as of the date the warrant liability was reclassified to equity.
**Registered
Direct Offering**
On
December 18, 2024, the Company sold 120,337 shares of its common stock to accredited investors in a registered direct offering at a purchase
price of $16.62 per share. The Company engaged Univest Securities to serve as its exclusive placement agent in connection with the offering.
The Company agreed to pay Univest Securities a cash fee equal to eight percent of the aggregate gross proceeds received in the offering.
It also agreed to reimburse Univest Securities for various expenses incurred in connection with the offering. The Company received net
proceeds of $1,665,000 from the offering after deducting placement agent fees and other offering expenses of $335,000.
**1800
Diagonal Financing Transactions**
****
1800
Diagonal Loan #1
On
June 17, 2025, the Company entered into a securities purchase agreement with 1800 Diagonal Lending, LLC (1800 Diagonal)
pursuant to which the Company issued a promissory note to 1800 Diagonal in the principal amount of $120,000. The note is subject to a
one-time interest charge of 12%, or approximately $14,000, and is payable in 12 monthly installments of $11,000 commencing on July 15,
2025. The security purchase agreement has a contingent default feature that the Company has determined to be nominal and is not applicable
unless an event of default occurs. The Company received net proceeds of $84,000 after deductions of $15,000 for original issue discount,
$16,000 for placement agent fees and $5,000 for legal and due diligence fees.
| F-33 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
The
Company incurred and paid $10,000 of interest expense under the promissory note during the year ended December 31, 2025. The outstanding
balance of this note was $63,000 as of December31, 2025. This amount is presented in the Companys consolidated balance sheets
net of unamortized issuance costs of $17,000as of December31, 2025.
1800
Diagonal Loan #2
On
June 17, 2025, the Company entered into a second securities purchase agreement with 1800 Diagonal pursuant to which the Company issued
a promissory note to 1800 Diagonal in the principal amount of $240,000. The note is subject to a one-time interest charge of 12%, or
approximately $29,000. An initial payment of $134,000 was due on December 15, 2025. Thereafter, the remainder is payable in six monthly
installments of $22,000 commencing on January 15, 2026. The security purchase agreement has a contingent default feature that the Company
has determined to be nominal and is not applicable unless an event of default occurs. The Company received net proceeds of $189,000 after
deductions of $30,000 for original issue discount, $16,000 for placement agent fees and $5,000 for legal and due diligence fees.
In
December 2025, the Company and 1800 Diagonal agreed that 1800 Diagonal would convert the initial payment of $134,000 into shares of the
Companys common stock rather than the Company making the payment to 1800 Diagonal in cash. Accordingly, in December 2025, the
Company issued an aggregate of 135,723 shares of common stock to 1800 Diagonal in full satisfaction of the initial payment of $134,000.
The
Company incurred $21,000 of interest expense under the promissory note during the year ended December 31, 2025. The outstanding balance
of this note was $122,000 as of December31, 2025. This amount is presented in the Companys consolidated balance sheets net
of unamortized issuance costs of $25,000as of December31, 2025.
**Boot
Capital Financing Transaction**
On
June 17, 2025, the Company entered into a securities purchase agreement with Boot Capital, LLC (Boot Capital) pursuant
to which the Company issued a promissory note to Boot Capital in the principal amount of $120,000. The note is subject to a one-time
interest charge of 12%, or approximately $14,000, and is payable in 12 monthly installments of $11,000 commencing on July 15, 2025. The
security purchase agreement has a contingent default feature that the Company has determined to be nominal and is not applicable unless
an event of default occurs. The Company received net proceeds of $105,000 after deductions of $15,000 for original issue discount.
The
Company incurred and paid $10,000 of interest expense under the promissory note during the year ended December 31, 2025. The
outstanding balance of this note was $63,000 as of December 31, 2025. This amount is presented in the Companys consolidated
balance sheets net of unamortized issuance costs of $8,000 as of December 31, 2025.
| F-34 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
**Agile
Capital Financing Transaction**
On
July 3, 2025, the Company entered into a business loan and security agreement with Agile Capital Funding, LLC (Agile Funding)
pursuant to which it issued a promissory note to Agile Funding in the principal amount of $368,000. The note is subject to a one-time
interest charge of $162,000 and is payable in 28 weekly installments of $19,000 commencing on July 14, 2025. The Company received net
proceeds of $350,000 after deductions of $18,000 for administrative agent fees.
The
Company incurred and paid $159,000 of interest expense under the promissory note during the year ended December 31, 2025. The outstanding
balance of the note was $54,000 as of December31, 2025. This amount is presented in the Companys consolidated balance sheets
net of unamortized issuance costs of $3,000as of December31, 2025.
**Streeterville
Capital Transaction**
On
August 21, 2025, the Company entered into a securities purchase agreement with Streeterville Capital, LLC, a Utah limited liability company
(Streeterville), pursuant to which the Company agreed to issue and sell to Streeterville shares of the Company common stock in one or more pre-paid purchases (each, a Pre-Paid Purchase and collectively, the Pre-Paid
Purchases) for an aggregate purchase price of up to $20,000,000 (the Streeterville Transaction). The Company also
agreed to issue an additional 95,694 shares of the Companys common stock to Streeterville as a commitment fee for the pre-paid
purchase facility established under the securities purchase agreement (the Commitment Shares). The securities purchase
agreement provides for a two-year commitment period during which, subject to certain specified conditions, the Company may request additional
Pre-Paid Purchases from Streeterville provided that the amount requested is no less than $250,000 and the total outstanding balance of
all Pre-Paid Purchases does not exceed $3,000,000. The original issue discount for each additional Pre-Paid Purchase will be nine percent
of the amount set forth in the applicable request and each additional Pre-Paid Purchase will accrue interest at the rate of nine percent
per annum. The Company also executed a guaranty, a security agreement, and intellectual property security agreement in favor of Streeterville
as part of the Streeterville Transaction. The Streeterville Transaction closed on August 21, 2025.
Following
the funding of each Pre-Paid Purchase, Streeterville has the right, but not the obligation, to purchase from the Company that number
of shares of common stock up to the lesser of: (i) a number of shares of common stock equal in value to the outstanding balance of
the funded amount, and (ii) that number of shares of common stock such that Streeterville will not beneficially own greater than 9.99%
of the Company outstanding shares of common stock. The purchase price of the shares of common stock will be 90%
of the lowest daily volume weighted average price during the 10 trading days immediately prior to the purchase notice date, but not
less than the floor price, which is the greater of: (i) 20%
of the Minimum Price as defined under Nasdaq Listing Rule 5635(d) prior to the applicable closing of the Pre-Paid
Purchase, and (ii) $0.10.
| F-35 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
Pursuant
to the terms of the securities purchase agreement, the Company filed a registration statement on Form S-1 under the Securities Act with
the SEC to register the resale of the Commitment Shares and all shares of common stock issuable pursuant to the Pre-Paid Purchases. The
registration statement became effective on November 10, 2025.
Nasdaq
Listing Rule 5635(d) provides that shareholder approval is required prior to the issuance of shares of the Company common stock equal
or greater in number to 20% of the number of shares of the Companys common stock issued and outstanding immediately prior to the
completion of the proposed issuance at a price that is less than the Minimum Price as such term is defined under Nasdaq
Listing Rule 5635(d) in a transaction that is not a public offering. The Company obtained the requisite shareholder approval for the
Streeterville Transaction on November 20, 2025.
The
Company may at any time prepay all or any portion of the outstanding balance of a Pre-Paid Purchase. In the event the Company elect to
do so, the Company must pay Streeterville an amount equal to 110% multiplied by the portion of the outstanding balance the Company elected
to prepay. If an event of default occurs under a Pre-Paid Purchase, the outstanding balance will become immediately due and payable.
At anytime thereafter, upon written notice given by Streeterville, the outstanding balance will increase by seven-and-a half percent
and interest will begin accruing at a rate of the lesser of 18% per annum or the maximum rate permitted under applicable law. The Company
obligations are secured by all of the Company assets pursuant to a security agreement and have been guaranteed by the Companys operating subsidiaries
pursuant to a guarantee, each entered into with Streeterville on August 21, 2025.
Univest
Securities, LLC served as the placement agent in the offering (Univest). The Company agreed to pay Univest a cash fee equal to eight percent of the aggregate gross proceeds that it receives
from any Pre-Paid Purchases that it completes and reimburse Univest for legal fees in the amount of $40,000.
Pre-Paid
Purchase #1
The
securities purchase agreement provides for an initial Secured Pre-Paid Purchase in the principal amount of $4,390,000, before deducting
an original issue discount of $360,000 and transaction expenses of $30,000 (the First Pre-Paid Purchase), the terms of
which are set forth on secured prepaid purchase #1 (Pre-Paid Purchase #1). The First Pre-Paid Purchase accrues interest
at the rate of nine percent per annum and has a maturity date of three years. The Company paid Univest a cash fee equal to eight percent of the aggregate gross proceeds received by the Company
from the First Pre-Paid Purchase.
During
the year ended December 31, 2025, the Company recognized $147,000 of interest expense associated with the First Pre-Paid Purchase. As
of December 31, 2025, the outstanding principal balance of the First Pre-Paid Purchase was $4,390,000, which is reflected in the consolidated
balance sheets net of unamortized issuance costs of $734,000.
| F-36 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
Pre-Paid
Purchase #2
On
November 13, 2025, the Company entered into Secured Pre-Paid Purchase #2 with Streeterville (Pre-Paid Purchase #2). Pre-Paid
Purchase #2 provides for a second Pre-Paid Purchase in the principal amount of $5,450,000, before deducting an original issue discount
of $450,000(the Second Pre-Paid Purchase). The Second Pre-Paid Purchase accrues interest at the rate of nine percent
per annum and has a maturity date of three years.
The
Second Pre-Paid Purchase was similar to the First Pre-Paid Purchase, however the Second Pre-Paid Purchase is secured by cash in an
amount not less than the lesser of: (i) $4,500,000, and (ii)90%of the then-current outstanding balance of the Second Pre-Paid
Purchase (the PPP2 Minimum Balance Amount). The secured funds are being held in a deposit account (the DACA Account)
held by RIME Holdings, LLC, a Utah limited liability company and wholly-owned subsidiary of the Company that the Company formed in connection
with this transaction (RIME Holdings), pursuant to a Deposit Account Control Agreement, dated November 13, 2025, by and
among RIME Holdings, Lakeside Bank, an Illinois banking company (Lakeside Bank), and Streeterville. Accordingly, of the
$5,000,000proceeds that the Company received from the Second Pre-Paid Purchase, $4,500,000were placed in the DACA Account.
The
Company has the right to use funds in the DACA Account to repay any portion of the outstanding balance of the Second Pre-Paid Purchase,
but only so long as the payment does not cause the outstanding balance to drop below the PPP2 Minimum Balance Amount. As long as no event
of default has occurred, the Company may withdraw from the Deposit Account any funds in excess of the PPP2 Minimum Balance Amount. RIME
Holdings executed a guaranty of the obligations outstanding under the Second Pre-Paid Purchase for the benefit of Streeterville.
The
Company entered into a new placement agency agreement with Univest that superseded the placement agency agreement that the Company
previously entered into with them on August 21, 2025. The Company agreed to pay Univest a cash fee equal to eight percent of the
aggregate gross proceeds that the Company receives from any Pre-Paid Purchases that the Company completes and reimburse Univest for
legal fees in the amount of $50,000.
During
the year ended December 31, 2025, the Company repaid an aggregate principal amount of $538,000 under the Second Pre-Paid Purchase as
a result of Streeterville exercising its right to purchase an aggregate of 421,770 shares of the Companys common stock, and recognized
$61,000 of interest expense associated with the Second Pre-Paid Purchase. As of December 31, 2025, the outstanding principal balance
of the Second Pre-Paid Purchase was $4,912,000, which is reflected in the consolidated balance sheets net of unamortized issuance costs
of $431,000.
Pre-Paid
Purchase #3
On
December 19, 2025, the Company entered into Secured Pre-Paid Purchase #3 with Streeterville (Pre-Paid Purchase #3). Pre-Paid
Purchase #3 provides for a third Pre-Paid Purchase in the principal amount of $1,090,000, before deducting an original issue discount
of $90,000 (the Third Pre-Paid Purchase). The Third Pre-Paid Purchase accrues interest at the rate of nine percent per
annum and has a maturity date of three years. The Company paid Univest a cash fee equal to eight percent of the aggregate gross proceeds
received from the Third Pre-Paid Purchase.
| F-37 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
During
the year ended December 31, 2025, the Company repaid an aggregate principal amount of $99,000 under the Third Pre-Paid Purchase as a
result of Streeterville exercising its right to purchase an aggregate of 83,901 shares of the Companys common stock, and recognized
$3,000 of interest expense associated with the Third Pre-Paid Purchase. As of December 31, 2025, the outstanding principal balance of
the Third Pre-Paid Purchase was $991,000, which is reflected in the consolidated balance sheets net of unamortized issuance costs of
$168,000.
Additional
information related to the Streeterville Transaction is presented in *Note 20 Subsequent Events*.
**Note
13 Derivative Liability**
****
During
the years ended December 31, 2025 and 2024, the Company had derivative warrant liabilities that were measured at fair value on a recurring
basis. These fair value measurements were estimated using a Monte Carlo simulation model, with the key inputs described below. Each of
these fair value measurements was considered to be a Level 3 measurement by the Company as they used significant unobservable inputs,
including the probability and expected date of stockholder approval.
The
key inputs for the Series A warrant liabilities were as follows:
Schedule of Derivative Warrant Liabilities
| 
Warrant Liability Series A Warrants | | 
Issuance Date | | | 
December 31, 2024 | | | 
January 13, 2025 | | |
| 
Stock price on valuation date | | 
$ | 18.00 | | | 
$ | 18.00 | | | 
$ | 8.38 | | |
| 
Exercise price | | 
$ | 34.00 | | | 
$ | 34.00 | | | 
$ | 8.38 | | |
| 
Number of shares of common stock | | 
| 279,412 | | | 
| 279,412 | | | 
| 1,113,652 | | |
| 
Remaining term (years) | | 
| 5.00 | | | 
| 4.93 | | | 
| 4.88 | | |
| 
Annual equity volatility | | 
| 113.0 | % | | 
| 114.0 | % | | 
| 126.00 | % | |
| 
Annual volume volatility | | 
| 377.0 | % | | 
| 379.0 | % | | 
| 377.00 | % | |
| 
Risk-free interest rate | | 
| 3.95 | % | | 
| 4.29 | % | | 
| 4.32 | % | |
| 
Expected stockholder approval date | | 
| January 14, 2025 | | | 
| January 14, 2025 | | | 
| January 13, 2025 | | |
| 
Expected stockholder approval probability | | 
| 50 | % | | 
| 50 | % | | 
| 100 | % | |
| 
Warrant Liability Series B Warrants | | 
Issuance Date | | | 
December 31, 2024 | | |
| 
Stock price on valuation date | | 
$ | 18.00 | | | 
$ | 18.00 | | |
| 
Exercise price | | 
$ | 68.00 | | | 
$ | 68.00 | | |
| 
Number of shares of common stock | | 
| 279,412 | | | 
| 279,412 | | |
| 
Remaining term (years) | | 
| 2.50 | | | 
| 2.43 | | |
| 
Annual equity volatility | | 
| 126.0 | % | | 
| 120.0 | % | |
| 
Annual volume volatility | | 
| 409.0 | % | | 
| 416.0 | % | |
| 
Risk-free interest rate | | 
| 4.00 | % | | 
| 4.17 | % | |
| 
Expected stockholder approval date | | 
| January 14, 2025 | | | 
| January 14, 2025 | | |
| 
Expected stockholder approval probability | | 
| 50 | % | | 
| 50 | % | |
The
Series B warrant liabilities were remeasured on each exercise date based on the closing price of the Companys common stock on
the date the warrants were exercised.
| F-38 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
On
January 13, 2025, the Companys shareholders approved the issuance of the Series A and Series B Warrants. This approval triggered
the adjustment to the exercise price described above. In connection with this approval, the holders of the Series B warrants exercised
their warrants in full under the alternative cashless exercise provision, resulting in the issuance of 1,910,975 shares of common stock
and no additional proceeds received by the Company. The Series A warrants became exercisable for 1,133,652 shares of common stock at
an exercise price of $8.38 per share after the shareholder approval adjustment was finalized on March 17, 2025. In addition, the Company
reassessed the classification of the Series A warrants after the shareholder approval adjustment was finalized, concluding that the Series
A warrants now met the requirements for equity classification under ASC 480 and ASC 815. The Company adjusted the Series A Warrants to
fair value upon reclassification and reclassified that value to additional paid-in capital during the year ended December 31, 2025.
The following table details the
Companys financial instruments that are required to be remeasured at fair value on a recurring basis and their fair value hierarchy
as of December 31, 2024:
Schedule
of Fair Value on a Recurring Basis
| 
December 31, 2024 | | 
Level 1 | | | 
Level 2 | | | 
Level 3 | | |
| 
Liabilities | | 
| | | | 
| | | | 
| | | |
| 
Warrant liabilities | | 
$ | | | | 
$ | | | | 
$ | 16,603,000 | | |
| 
Total liabilities | | 
$ | | | | 
$ | | | | 
$ | 16,603,000 | | |
The Company did not have any warrant liabilities outstanding at December 31, 2025.
The
following table provides a roll-forward of the fair value of the derivative liabilities described above during the year ended December
31, 2025 and 2024:
Schedule of Fair Value of the Derivative Liabilities
| 
| | 
Series A
Warrants | | | 
Series B
Warrants | | | 
Total Warrant
Liabilities | | |
| 
Balance at December 31, 2023 | | 
$ | | | | 
$ | | | | 
$ | | | |
| 
Issuances | | 
| 5,901,000 | | | 
| 11,036,000 | | | 
| 16,937,000 | | |
| 
Exercises | | 
| | | | 
| | | | 
| | | |
| 
Loss (gain) on change in fair value | | 
| (445,000 | ) | | 
| 111,000 | | | 
| (334,000 | ) | |
| 
Balance at December 31, 2024 | | 
$ | 5,456,000 | | | 
$ | 11,147,000 | | | 
$ | 16,603,000 | | |
| 
Balance | | 
$ | 5,456,000 | | | 
$ | 11,147,000 | | | 
$ | 16,603,000 | | |
| 
| | 
| | | | 
| | | | 
| | | |
| 
Exercises | | 
| | | | 
| (15,214,000 | ) | | 
| (15,214,000 | ) | |
| 
Loss on change in fair value | | 
| 2,401,000 | | | 
| 4,067,000 | | | 
| 6,468,000 | | |
| 
Reclassification to equity | | 
| (7,857,000 | ) | | 
| | | | 
| (7,857,000 | ) | |
| 
Balance at December 31, 2025 | | 
$ | | | | 
$ | | | | 
$ | | | |
| 
Balance | | 
$ | | | | 
$ | | | | 
$ | | | |
The
following table provides a roll-forward of the number of warrants issued during the years ended December 31, 2025 and 2024:
Schedule of Shares of Common Stock Underlying Warrants
| 
| | 
Pre-Funded Warrants | | | 
Series A
Warrants | | | 
Series B
Warrants | | | 
Other
Warrants | | | 
Total | | |
| 
Balance at December 31, 2023 | | 
| | | | 
| | | | 
| | | | 
| 4,511 | | | 
| 4,511 | | |
| 
Issuances | | 
| 258,412 | | | 
| 279,412 | | | 
| 279,412 | | | 
| | | | 
| 817,236 | | |
| 
Exercises | | 
| (258,412 | ) | | 
| | | | 
| | | | 
| | | | 
| (258,412 | ) | |
| 
Balance at December 31, 2024 | | 
| | | | 
| 279,412 | | | 
| 279,412 | | | 
| 4,511 | | | 
| 563,335 | | |
| 
Issuances | | 
| | | | 
| | | | 
| | | | 
| | | | 
| | | |
| 
Exercises | | 
| | | | 
| | | | 
| (279,412 | ) | | 
| | | | 
| (279,412 | ) | |
| 
Balance at December 31, 2025 | | 
| | | | 
| 279,412 | | | 
| | | | 
| 4,511 | | | 
| 283,923 | | |
The Company did not issue any warrants during the year ended December 31, 2025.
| F-39 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
****
**Note
14 Income Taxes**
The
Companys loss before income taxes for the years ended December 31, 2025 and 2024 is as follows:
Schedule of Loss Before Income Taxes
| 
| | 
December 31, 2025 | | | 
December 31, 2024 | | |
| 
| | 
Year ended | | |
| 
| | 
December 31, 2025 | | | 
December 31, 2024 | | |
| 
United States | | 
$ | (14,513,000 | ) | | 
$ | (24,414,000 | ) | |
| 
Foreign | | 
| (2,012,000 | ) | | 
| 47,000 | | |
| 
Loss before income taxes | | 
$ | (16,525,000 | ) | | 
$ | (24,367,000 | ) | |
The
Company did not have any provision for income taxes for the years ended December 31, 2025 and 2024.
The
Companys net deferred tax assets as of December 31, 2025 and 2024 are as follows:
Schedule of Deferred Tax Assets and Liabilities
| 
| | 
December 31, 2025 | | | 
December 31, 2024 | | |
| 
NOL Federal carryforward | | 
$ | 6,491,000 | | | 
$ | 4,085,000 | | |
| 
State NOL carryforward | | 
| 2,235,000 | | | 
| 1,426,000 | | |
| 
Inventory differences | | 
| - | | | 
| 355,000 | | |
| 
Impairment of goodwiIll - SemiCab, Inc. | | 
| 614,000 | | | 
| 674,000 | | |
| 
Stock option compensation expense | | 
| 197,000 | | | 
| 179,000 | | |
| 
Intangibles | | 
| 136,000 | | | 
| 253,000 | | |
| 
ROU liability | | 
| - | | | 
| 14,000 | | |
| 
Section 163(j) | | 
| 853,000 | | | 
| 694,000 | | |
| 
Allowance for doubtful accounts | | 
| 31,000 | | | 
| 40,000 | | |
| 
Warrant liability | | 
| 1,687,000 | | | 
| - | | |
| 
Reserve for estimated returns | | 
| - | | | 
| 476,000 | | |
| 
Accrued vacation | | 
| - | | | 
| 19,000 | | |
| 
Deferred tax assets gross | | 
| 12,244,000 | | | 
| 8,215,000 | | |
| 
Less: valuation allowance | | 
| (12,209,000 | ) | | 
| (8,039,000 | ) | |
| 
Deferred tax asset | | 
| 35,000 | | | 
| 176,000 | | |
| 
| | 
| | | | 
| | | |
| 
Depreciable and amortizable assets | | 
| - | | | 
| (39,000 | ) | |
| 
ROU asset | | 
| - | | | 
| (14,000 | ) | |
| 
Warrant liability | | 
| - | | | 
| (92,000 | ) | |
| 
Prepaid expenses | | 
| (35,000 | ) | | 
| (31,000 | ) | |
| 
Deferred tax liability | | 
| (35,000 | ) | | 
| (176,000 | ) | |
| 
Net deferred tax | | 
$ | - | | | 
$ | - | | |
The
Company recognizes federal, state and foreign current tax liabilities or assets based on its estimate of taxes payable to or refundable
by tax authorities in the current fiscal year. The Company also recognizes federal, state and foreign deferred tax liabilities or assets
based on the Companys estimate of future tax effects attributable to temporary differences and carryforwards. The Company records
a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment,
are not expected to be realized.
| F-40 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
The
Company performed an analysis in accordance with the provisions of ASC 740, which requires an assessment of both positive and negative
evidence when determining whether it is more likely than not that deferred tax assets are recoverable. The
analysis performed to assess the realizability of the deferred tax assets included an evaluation of the pattern and timing of the reversals
of temporary differences and the length of carryback and carryforward periods available under the applicable federal, state and foreign
laws; and the amount and timing of future taxable income. The Company evaluated the realizability of its deferred tax assets as
of December 31, 2025 and 2024 in accordance with accounting principles generally accepted in the United States of America and concluded
that a valuation allowance against all of the Companys deferred tax assets was necessary based upon the Companys conclusions
regarding, among other considerations, the Companys recent history of losses and projected losses for fiscal year 2026 and in
the future.
The
Companys income tax expense differs from the amount computed due to the application of the U.S.
federal statutory tax rate
of 21%
to loss before
income taxes as follows:
Schedule
of Effective Income Tax Rate Reconciliation
| 
| | 
Amount | | | 
% | | |
| 
| | 
Pre- ASU 2023-09 Adoption | | |
| 
| | 
Year ended December 31, 2025 | | |
| 
| | 
Amount | | | 
% | | |
| 
U.S. Federal statutory income tax rate | | 
| (3,471,000 | ) | | 
| 21.0 | % | |
| 
State and local income taxes, net of federal benefit | | 
| (1,075,000 | ) | | 
| 6.5 | % | |
| 
Permanent differences: | | 
| - | | | 
| | | |
| 
Meals & Entertainment | | 
| 6,000 | | | 
| 0.0 | % | |
| 
Permanent difference gain on sale of SMH | | 
| (233,000 | ) | | 
| 1.4 | % | |
| 
Foreign tax rate differential | | 
| 601,000 | | | 
| (3.6 | )% | |
| 
Change in valuation allowance | | 
| 4,170,000 | | | 
| (25.2 | )% | |
| 
Other | | 
| (45,000 | ) | | 
| 0.3 | % | |
| 
Income tax loss | | 
$ | (47,000 | ) | | 
| 0.3 | % | |
| 
| 
| 
Pre- ASU 2023-09 Adoption | | |
| 
| 
| 
Year ended
December 31, 2024 | | |
| 
Expected tax expense (benefit) | 
| 
$ | (5,117,000 | ) | |
| 
State income taxes, net of federal income tax effect | 
| 
| (1,574,000 | ) | |
| 
Permanent differences | 
| 
| (441,000 | ) | |
| 
Permanent difference loss on issuance of warrants | 
| 
| 2,441,000 | | |
| 
Tax rate differential on foreign earnings | 
| 
| 13,000 | | |
| 
Change in valuation allowance | 
| 
| 4,428,000 | | |
| 
Other | 
| 
| 250,000 | | |
| 
Actual tax (benefit) provision | 
| 
$ | - | | |
At
December 31, 2025, the Company had federal tax net operating loss carryforwards in the amount of $30,911,000 that begin to expire
in the year 2026. The net operating loss carryforward is subject to an IRS Section 382 limitation that limited the amount available to
use beginning in fiscal 2020 to $150,000 per year. In addition, the Company had state tax net operating loss carryforwards in the amount
of $36,908,000 that will begin to expire in 2026. These tax net operating loss carryforwards may be subject to further adjustment based
on future changes in ownership.
At
December 31, 2025, the Company evaluated the realizability of its deferred tax assets in accordance with GAAP and concluded that a valuation
allowance of $12,209,000 against deferred tax assets is necessary. The change in valuation allowance increased $4,170,000 to $12,209,000
as of December 31, 2025 from $8,039,000 as of December 31, 2024. The recognition of the remaining net deferred tax asset and corresponding
tax benefit is based upon the Companys conclusions regarding, among other considerations, the Companys current and anticipated
customers, contracts and product introductions, and recent operating results.
| F-41 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
The
Companys policy is to recognize interest or penalties related to income tax matters in the provision for income taxes. The Company
currently has no liabilities recorded for accrued interest or penalties and does not have any liabilities recorded related to uncertain
tax positions.
**Note
15 Segment Information and Revenue Disaggregation**
****
**Segment
Information**
****
In
accordance with ASC 280, Segment Reporting, an operating segment is defined as a component of an enterprise that engages in business
activities from which it may earn revenues and incur expenses, for which discrete financial information is available, and whose operating
results are regularly reviewed by the CODM in allocating resources and assessing performance.
Prior
to August 1, 2025, the CODM determined that the Company operated in two reportable segments: (i) the SemiCab business, and (ii) the Singing
Machine business. On August 1, 2025, the Company completed the sale of its Singing Machine business. Upon the completion of this transaction,
the Company began operating as a single reportable segment consisting of its SemiCab business. As a result of the sale, the operating
results and cash flows of the Singing Machine business have been reclassified as discontinued operations for all periods presented in
the consolidated financial statements. Additional information regarding the discontinued operations is provided in *Note 19 
Discontinued Operations*.
The
Companys CODM reviews consolidated operating results including net sales, gross profit, loss from operations, and net loss from
continuing operations, as presented in the consolidated statements of operations. The CODM also considers consolidated operating expenses,
non-financial information, and qualitative factors in evaluating performance, monitoring budgeted to actual results, and making decisions
regarding capital allocation and levels of investment in operating activities. The CODM does not review segment asset information for
purposes of allocating resources.
**Geographic
Information**
Revenue
is attributed to geographic areas based on the location where services are rendered. For the year ended December 31, 2025, substantially all of the Companys revenues were generated from customers located in India. For the year ended December 31, 2024, all of the Companys revenues were generated from customers located
in the United States.
| F-42 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
**Notes
16 Concentrations, Risks and Uncertainties**
****
**Bank
Liquidity and Financial Stability**
At
times, the Company maintains cash in United States bank accounts that are more than the Federal Deposit Insurance Corporation insured
amounts. The Company maintains cash balances in foreign financial institutions. The Company regularly monitors the financial stability
of this financial institution and believes that it is not exposed to any significant credit risk in cash and cash equivalents. However,
in March and April 2023, certain U.S. government banking regulators took steps to intervene in the operations of certain financial institutions
due to liquidity concerns, which caused general heightened uncertainties in financial markets. While these events have not had a material
direct impact on the Companys operations, if further liquidity and financial stability concerns arise with respect to banks and
financial institutions, either nationally or in specific regions, the Companys ability to access cash or enter into new financing
arrangements may be threatened, which could have a material adverse effect on its business, financial condition and results of operations.
****
**Revenue
Concentration**
The
Company derives a majority of its revenue from sales of its AI-enabled software logistics services in India. The Companys allowance
for credit losses is based upon managements estimates and historical experience and reflects the fact that accounts receivable
is concentrated with several large customers. As of December 31, 2025, 58% of accounts receivable were due from three customers in India
that each individually owed more than 10% of the Companys total accounts receivable. At December 31, 2024, no customer individually
owed more than 10% of the Companys total accounts receivable.
Revenue
derived from the Companys largest customer and three largest customers collectively as a percentage of total net sales was 32%
and 72% of the Companys revenue, respectively, for the year ended December 31, 2025. The loss of any of these customers could
have an adverse impact on the Company.
****
**Note
17 Related Party Transactions**
****
**Stingray
Holdings Music Subscription Agreement**
The
Company has a music subscription sharing agreement with Stingray Group under which the Company generated music subscription revenue of
$64,000 and $780,000 during the years ended December 31, 2025 and 2024, respectively. This
revenue was included in net loss from discontinued operations on the Companys consolidated statements of operations for the years ended December
31, 2025 and 2024. As of December 31, 2025 and 2024, the Company had $0 and $212,000, respectively, due
from Stingray Group for music subscription reimbursement. These accounts receivable were included in current assets of discontinued
operations in the Companys consolidated balance sheets as of December 31, 2024. Mathieu Peloquin is the
Senior Vice-President, Marketing and Communications of Stingray Group and served as a member of the Companys board of directors until October
6, 2025.
****
| F-43 | |
****
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
****
**SMCB**
****
*VIE
Analysis*
The
Company determined that SMCB, which was a subsidiary of SemiCab, Inc. prior to SemiCab Holdings acquisition of 99.99% of the equity
shares of SMCB on May 2, 2025, was a VIE as the Company provides financial support to SMCB. While not contractually obligated, SMCB currently
relies on the Companys 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 SMCBs operations, SMCB has been determined to
be a VIE prior to May 2, 2025.
The
Company further determined that it was not the primary beneficiary of SMCB because the Company did not have the power to direct or control
SMCBs significant activities related to its business. Accordingly, the Company has not consolidated SMCBs results of operations
and financial position in its condensed consolidated financial statements prior to May 2, 2025.
Pursuant
to the terms of the asset purchase agreement that the Company entered into on June 11, 2024, the Company entered into an option agreement
that granted SemiCab Holdings the right to acquire all of the issued and outstanding equity securities of SMCB for 1,605 shares of the
Companys common stock. The Company did not exercise this right and the option agreement expired on August 31, 2024.
*Loan
Agreement*
The
Company is a party to a loan agreement with SMCB dated March 22, 2024. Under the loan agreement, the Company agreed to loan up to $2,500,000
to SMCB. The loans are anticipated to be made in tranches. Disbursements of any tranches are fully at the discretion of the Company.
Each tranche has a repayment period of five years. The loans can be repaid at any time prior to the five-year maturity date without penalty.
Interest on the loans accrues at a rate of six percent per year and is payable quarterly.
At
December 31, 2024, a total of $1,140,000 was outstanding under the loan agreement. During the period beginning January 1, 2025 and ending
May 2, 2025, the date the Company acquired 99.99% of the equity shares of SMCB, the Company made advances to SMCB in the amount of $1,172,000.
During the same period, SMCB charged $304,000 for services to the Company that were performed under the MSA, which charges offset amounts
due under the loan with SMCB. As a result, as of May 2, 2025, a total of $2,008,000 of loans were outstanding under the loan agreement,
and a total of $492,000 remained available for future borrowings under the loan agreement as of May 2, 2025. As of May 2, 2025, SMCB
had not made any interest payments due under the loan agreement. As a result, the loans were in default as of May 2, 2025.
| F-44 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
On
May 2, 2025, the loan payable of $2,008,000 of SMCB and the loan receivable of $2,008,000 of the Company were eliminated in consolidation.
As a result, no such loans payable and loans receivable were outstanding on the Companys condensed consolidated balance sheet
at December 31, 2025. Also on May 2, 2025, revenue generated by SMCB for services performed by SMCB under the MSA of $304,000, and expenses
for the Company for services performed by SMCB under the MSA of $304,000, during the period commencing January 1, 2025 and ending May
2, 2025 were eliminated in consolidation on May 2, 2025. As a result, no such revenue and expenses were reflected on the Companys
condensed consolidated statements of operations for the year ended December 31, 2025 and 2024.
**Note
18 Acquisition of SMCB**
****
On
May 2, 2025, the Company and SemiCab Holdings entered into an equity purchase agreement with SemiCab, Inc. pursuant to which: (i) SemiCab
Holdings purchased 9,999 shares of the issued and outstanding equity shares, Rs. 10 par value, of SMCB, representing 99.99% of the issued
and outstanding equity shares of SMCB, for $1,750,000, the payment of which amount was evidenced by the issuance of a promissory note
by the Company to the SemiCab, Inc., and (ii) the Company purchased the 20% membership interest in SemiCab Holdings then held by SemiCab,
Inc. for aggregate consideration consisting of 119,742 shares of the Companys common stock. The acquisition was completed on May
2, 2025 (the Closing Date). The promissory note provides that $1,500,000 is due and payable by the Company on the first
anniversary of the Closing Date and the remaining $250,000 is due and payable by the Company on the 18-month anniversary of the Closing
Date. The promissory note bears interest at six percent per annum. The Company completed the acquisition to expand its AI logistics and
distribution into India.
On
the Closing Date, the Company and SemiCab Holdings entered into an amended and restated employment agreement with each of Ajesh Kapoor
and Vivek Sehgal pursuant to which Mr. Kapoor agreed to serve as the Chief Executive Officer and Chief Technology Officer of SemiCab
Holdings and Mr. Sehgal agreed to serve as the Chief Product Officer of SemiCab Holdings. Pursuant to the terms of the employment agreements,
SemiCab Holdings granted Messrs. Kapoor and Sehgal a membership interest in SemiCab Holdings of 15% and five percent, respectively. Of
these amounts, one quarter of each such grant vested in full on the date of grant, and the remaining amounts vest evenly over three years.
The
following table summarizes the allocation of the purchase price as May 2, 2025, the date the acquisition was completed:
Schedule of Business Acquisition
| 
Consideration: | | 
| | |
| 
Promissory note | | 
$ | 1,750,000 | | |
| 
119,742 shares of common stock | | 
| 316,000 | | |
| 
Assumption of debt | | 
| 2,008,000 | | |
| 
Total | | 
$ | 4,074,000 | | |
| 
| | 
| | | |
| 
Identifiable net tangible assets acquired: | | 
| | | |
| 
Cash and cash equivalents | | 
$ | 593,000 | | |
| 
Accounts receivable, net | | 
| 319,000 | | |
| 
Prepaid expenses and other current assets | | 
| 377,000 | | |
| 
Property and equipment, net | | 
| 11,000 | | |
| 
Other non-current assets | | 
| 128,000 | | |
| 
Accounts payable, accrued expenses and other liabilites | | 
| (731,000 | ) | |
| 
Net tangible assets acquired | | 
$ | 697,000 | | |
| 
| | 
| | | |
| 
Identifiable intangible assets acquired: | | 
| | |
| 
Customer relationships | | 
$ | 1,007,000 | | |
| 
Reacquired rights | | 
| 294,000 | | |
| 
Trade name | | 
| 180,000 | | |
| 
Net intangible assets acquired | | 
$ | 1,481,000 | | |
| 
| | 
| | | |
| 
Net assets acquired | | 
$ | 2,178,000 | | |
| 
| | 
| | | |
| 
Goodwill | | 
$ | 1,896,000 | | |
| F-45 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
*Pro
Forma Information*
The
unaudited pro forma financial information below presents the effects of the acquisition as though it had been completed on January 1,
2024. The pro forma adjustments are derived from the historically reported transactions of the respective companies. The pro forma results
do not include anticipated combined effects or other expected benefits of the acquisition. The pro forma results for the year ended December
31, 2025 and 2024 reflect the combined performance of the Company and the SMCB business for that period. The unaudited pro forma information
is based on available data and certain assumptions that the Company believes are reasonable given the circumstances. However, actual
results may differ materially from the assumptions used in the accompanying unaudited pro forma financial information. This selected
unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not intended to represent
what the actual consolidated results of operations would have been had the acquisition date occurred on January 1, 2024, nor does it
attempt to forecast future consolidated results of operations.
Schedule of Pro Forma Financial Information
| 
| | 
December 31, 2025 | | | 
December 31, 2024 | | |
| 
| | 
Year ended | | |
| 
| | 
December 31, 2025 | | | 
December 31, 2024 | | |
| 
Net revenue | | 
$ | 8,394,527 | | | 
$ | 6,432,000 | | |
| 
Operating loss from continuing operations | | 
| (11,215,915 | ) | | 
| (16,092,000 | ) | |
| 
Net loss | | 
$ | (25,251,915 | ) | | 
$ | (26,535,000 | ) | |
Additional
information on the acquisition of SMCB is presented in *Note 20 Subsequent Events*.
**Note
19 Discontinued Operations**
****
On
August 1, 2025, the Company entered into an asset purchase agreement with SMC and Stingray Music USA, Inc. (Stingray USA)
pursuant to which Stingray USA purchased substantially all of the assets, and assumed most of the liabilities, associated with the Companys
Singing Machine business for $500,000. The transaction closed on August 1, 2025.
The
Company determined that the sale of the Singing Machine business met the criteria under Accounting Standards Codification (ASC)
205-20, Presentation of Financial Statements Discontinued Operations (ASC 205-20), to be classified as a discontinued
operation as the sale represented a strategic shift that will have a significant effect on the Companys operations and financial
results. Accordingly, the consolidated balance sheets, the consolidated statements of operations and the consolidated statement of cash
flows have been adjusted for prior periods to reflect the Singing Machine business as a discontinued operation.
| F-46 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
The
following table summarizes the results of the Singing Machine business as a discontinued operation in the consolidated statements of
operations for the years ended December 31, 2025 and 2024:
Schedule of Discontinued Operation Income Statement, Assets and Liabilities in the Condensed Consolidated Statements of Operations
| 
| | 
December 31, 2025 | | | 
December 31, 2024 | | |
| 
| | 
For the Year Ended | | |
| 
| | 
December 31, 2025 | | | 
December 31, 2024 | | |
| 
| | 
| | | 
| | |
| 
Net Sales | | 
$ | 4,019,000 | | | 
$ | 23,197,000 | | |
| 
| | 
| | | | 
| | | |
| 
Cost of Goods Sold | | 
| 2,033,000 | | | 
| 18,222,000 | | |
| 
| | 
| | | | 
| | | |
| 
Gross Profit | | 
| 1,986,000 | | | 
| 4,975,000 | | |
| 
| | 
| | | | 
| | | |
| 
Operating Expenses | | 
| | | | 
| | | |
| 
Selling expenses | | 
| 1,098,000 | | | 
| 2,874,000 | | |
| 
General and administrative expenses | | 
| 2,429,000 | | | 
| 7,584,000 | | |
| 
Total Operating Expenses | | 
| 3,527,000 | | | 
| 10,458,000 | | |
| 
| | 
| | | | 
| | | |
| 
Loss From Operations | | 
| (1,541,000 | ) | | 
| (5,483,000 | ) | |
| 
| | 
| | | | 
| | | |
| 
Other Expenses | | 
| | | | 
| | | |
| 
Gain on sale of Singing Machine business | | 
| 179,000 | | | 
| - | | |
| 
Total Other Expenses | | 
| 179,000 | | | 
| - | | |
| 
| | 
| | | | 
| | | |
| 
Loss Before Income Tax Benefit | | 
| (1,362,000 | ) | | 
| (5,483,000 | ) | |
| 
| | 
| | | | 
| | | |
| 
Income Tax | | 
| - | | | 
| - | | |
| 
| | 
| | | | 
| | | |
| 
Net Loss From Discontinued Operations | | 
$ | (1,362,000 | ) | | 
$ | (5,483,000 | ) | |
| F-47 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
The
following table summarizes the assets and liabilities of the Singing Machine business as a discontinued operation in the consolidated balance sheet for the year ended December
31, 2024:
| 
| | 
December 31, 2024 | | |
| 
| | 
| | |
| 
Assets | | 
| | | |
| 
| | 
| | | |
| 
Current Assets | | 
| | | |
| 
Cash | | 
$ | 317,000 | | |
| 
Accounts receivable, net | | 
| 4,252,000 | | |
| 
Accounts receivable, related party | | 
| 212,000 | | |
| 
Accounts receivable | | 
| 212,000 | | |
| 
Inventory | | 
| 2,186,000 | | |
| 
Returns asset | | 
| 1,621,000 | | |
| 
Prepaid expenses and other current assets | | 
| 61,000 | | |
| 
Total Current Assets of Discontinued Operations | | 
$ | 8,649,000 | | |
| 
| | 
| | | |
| 
Property and equipment, net | | 
| 282,000 | | |
| 
Other non-current assets | | 
| 124,000 | | |
| 
Total Non-Current Assets of Discontinued Operations | | 
$ | 406,000 | | |
| 
| | 
| | | |
| 
Liabilities | | 
| | | |
| 
| | 
| | | |
| 
Current Liabilities | | 
| | | |
| 
Accounts payable | | 
$ | 3,421,000 | | |
| 
Accrued expenses | | 
| 2,478,000 | | |
| 
Refund due to customer | | 
| 38,000 | | |
| 
Reserve for sales returns | | 
| 3,355,000 | | |
| 
Other current liabilities | | 
| 95,000 | | |
| 
Total Current Liabilities of Discontinued Operations | | 
$ | 9,387,000 | | |
There
are no assets or liabilities of the discontinued operations as of December 31, 2025.
The following table summarizes the cash flows of the Singing Machine business as a discontinued operation in the consolidated statements
of cash flows for the years ended December 31, 2025 and 2024:
| 
| | 
December 31, 2025 | | | 
December 31, 2024 | | |
| 
| | 
For the Year Ended | | |
| 
| | 
December 31, 2025 | | | 
December 31, 2024 | | |
| 
| | 
| | | 
| | |
| 
Net cash used in operating activities | | 
$ | (2,539,000 | ) | | 
$ | (5,080,000 | ) | |
| 
Net cash provided by investing activities | | 
| 845,000 | | | 
| 122,000 | | |
| 
Net cash provided by financing activities | | 
| - | | | 
| - | | |
| 
Total cash used in discontinued operations | | 
$ | (1,694,000 | ) | | 
$ | (4,958,000 | ) | |
**Note
20 Subsequent Events**
**Streeterville
Capital Transaction**
Pre-Paid
Purchase #1
Between
January 1, 2026 and March 13, 2026, the Company repaid outstanding principal in the amount of $3,305,000 under the First Pre-Paid Purchase
as a result of Streeterville exercising its right to purchase an aggregate of 3,218,166 shares of the Companys common stock. The
current outstanding balance of the First Pre-Paid Purchase is $1,085,000.
| F-48 | |
**ALGORHYTHM
HOLDINGS, INC AND SUBSIDIARIES**
**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
**December
31, 2025 and 2024**
Pre-Paid
Purchase #2
Between
January 1, 2026 and February 13, 2026, the Company repaid outstanding principal in the amount of $4,912,000 under the Second Pre-Paid
Purchase as a result of Streeterville exercising its right to purchase an aggregate of 6,447,017 shares of the Companys common
stock. The Second Pre-Paid Purchase was repaid in full on February 13, 2026.
Pre-Paid
Purchase #3
Between
January 1, 2026 and January 7, 2026, the Company repaid outstanding principal in the amount of $991,000 under the Third Pre-Paid Purchase
as a result of Streeterville exercising its right to purchase an aggregate of 1,132,410 shares of the Companys common stock. The
Third Pre-Paid Purchase was repaid in full on January 7, 2026.
Pre-Paid
Purchase #4
On
February 17, 2026, the Company entered into Secured Pre-Paid Purchase #4 with Streeterville (Pre-Paid Purchase #4). Pre-Paid
Purchase #4 provides for a fourth Pre-Paid Purchase in the principal amount of $10,355,000, before deducting an original issue discount
of $855,000 (the Fourth Pre-Paid Purchase). The Fourth Pre-Paid Purchase accrues interest at the rate of nine percent per
annum and has a maturity date of three years. The Fourth Pre-Paid Purchase is similar to the Second Pre-Paid Purchase in that the Fourth
Pre-Paid Purchase is secured by cash in an amount not less than the lesser of: (i) $3,500,000, and (ii) 90% of the then-current outstanding
balance of the Fourth Pre-Paid Purchase (the PPP4 Minimum Balance Amount). Accordingly, of the $9,500,000 in proceeds that
the Company received from the Fourth Pre-Paid Purchase, $3,500,000 was placed in the DACA Account.
The
Company has the right to use funds in the DACA Account to repay any portion of the outstanding balance of the Fourth Pre-Paid Purchase,
but only so long as the payment does not cause the outstanding balance to drop below the PPP4 Minimum Balance Amount. As long as no event
of default has occurred, the Company may withdraw from the Deposit Account any funds in excess of the PPP4 Minimum Balance Amount. RIME Holdings
executed a guaranty of the obligations outstanding under the Fourth Pre-Paid Purchase for the benefit of Streeterville.
The
Company paid Univest a cash fee equal to eight percent of the aggregate gross proceeds received from the Fourth Pre-Paid Purchase that
were not placed in the DACA Account. The Company will pay Univest a cash fee equal to eight percent of the funds held in the DACA Account
when they are released to the Company.
The
Company has not repaid any of the principal outstanding under the Fourth Pre-Paid Purchase.
**Acquisition
of SMCB**
In
January 2026, the Indian government approved the purchase by SemiCab Holdings of the remaining outstanding equity share in SMCB, representing 0.01% of the issued and outstanding equity shares of SMCB, from
Sudheer Srinivas Kadandale for $10.
****
| F-49 | |