Business Context and Reporting Period
Company: Algorhythm Holdings, Inc. (Ticker: RIME)
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 2026
Business Overview: The Company is an AI technology firm focused on SemiCab, an AI-enabled software logistics and distribution platform. On August 1, 2025, the Company sold its former Singing Machine business, which is now reported as discontinued operations. The Company currently operates as a single segment.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Net Sales | $2,400,000 | $123,000 |
| Cost of Sales | $3,077,000 | $129,000 |
| Gross Loss | $(677,000) | $(6,000) |
| Operating Expenses | $3,667,000 | $1,056,000 |
| Net Loss (Continuing Ops) | $(5,380,000) | $(7,546,000) |
| Net Loss Available to Common Shareholders | $(5,106,000) | $(9,191,000) |
| Loss Per Share (Basic & Diluted) | $(0.52) | $(4.66) |
| Cash & Restricted Cash (End of Period) | $10,939,000 | $3,267,000 |
| Total Assets | $18,455,000 | $12,724,000 |
| Total Liabilities | $15,287,000 | $14,584,000 |
| Shareholders' Equity | $3,168,000 | $(1,860,000) |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased by $2.28 million (1,851%) primarily due to the inclusion of the SMCB business acquired in May 2025. All Q1 2026 revenue was generated in India, whereas Q1 2025 revenue was from the U.S.
- Profitability: While the Net Loss decreased by approximately $2.1 million compared to Q1 2025, the Company remains unprofitable. The reduction in loss was largely driven by the absence of a $6.47 million non-cash loss on the change in fair value of warrant liabilities recorded in Q1 2025.
- Operating Expenses: Operating expenses increased by $2.61 million, driven by higher General and Administrative expenses ($3.63M vs $1.06M) related to business growth and stock-based compensation ($923k vs $85k).
- Liquidity: Cash and restricted cash increased by $7.67 million to $10.94 million, fueled by $9.02 million in net proceeds from a "Pre-Paid Purchase" financing transaction with Streeterville Capital.
- Debt: Promissory notes payable increased to $9.50 million (net) from $9.10 million. The Company has significant related party debt of $2.30 million.
Outlook, Risks, and Contingencies
- Going Concern: Management has expressed substantial doubt about the Company's ability to continue as a going concern for at least one year. Current cash is deemed insufficient to fund planned operations without additional financing.
- Outlook: Management expects net sales to increase substantially over the next 12 months as the customer base in India grows and operations expand to the U.S. and Europe. However, operating expenses and net losses are also expected to increase.
- Legal Proceedings:
- Blue Yonder: A judgment of $509,119 remains outstanding. The Company filed counterclaims, but the court granted Blue Yonder's motion for judgment on the pleadings on January 30, 2026. The outcome remains uncertain.
- Derivative Litigation: A derivative suit filed by Ault Lending was dismissed without prejudice in April 2025.
- Subsequent Event (Default): The Company failed to make a $1.5 million payment due to SemiCab, Inc. on May 2, 2026, triggering a default. A forbearance agreement was signed on May 9, 2026, waiving the default until June 16, 2026.
- Nasdaq Compliance: The Company regained compliance with the $2.5 million stockholders' equity requirement in Q1 2026 ($3.17M reported) after previously falling below the threshold. It remains under a one-year monitoring period for minimum bid price compliance.
- Internal Controls: The Company identified material weaknesses in internal controls over financial reporting, citing insufficient accounting resources and lack of segregation of duties.
Investor Verification Checklist
- Financing Sustainability: Verify the terms and availability of future capital, given the "substantial doubt" regarding going concern status and the recent default on the SemiCab promissory note.
- Revenue Concentration: Confirm the stability of the two largest Indian customers, who collectively accounted for 74% of Q1 2026 revenue.
- Legal Exposure: Monitor the status of the Blue Yonder litigation and the potential enforcement of the $509k judgment.
- Debt Structure: Review the terms of the Streeterville "Pre-Paid Purchase" facility, specifically the 9% interest rate, 110% prepayment penalty, and the requirement to hold restricted cash (DACA Account) as collateral.
- Equity Dilution: Assess the impact of the significant share issuances (over 10 million shares issued in Q1 2026) on existing shareholder value.