PART I. FINANCIAL INFORMATION Financial Statements The company's financial statements for the nine months ended September 30, 2024, show a significant decline in assets, widening net losses, and negative operating cash flow Condensed Consolidated Balance Sheets As of September 30, 2024, total assets decreased to $19.6 million, primarily due to a significant reduction in cash, while shareholders' equity also declined Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash | $621 | $6,703 | | Total Current Assets | $14,406 | $23,206 | | Goodwill | $3,354 | $0 | | Total Assets | $19,612 | $27,715 | | Liabilities & Equity | | | | Total Current Liabilities | $16,488 | $16,209 | | Total Liabilities | $16,873 | $20,137 | | Total Shareholders' Equity | $2,739 | $7,578 | | Total Liabilities & Equity | $19,612 | $27,715 | Condensed Consolidated Statements of Operations While Q3 2024 saw net income due to a lease termination gain, the nine-month period reported a wider net loss and significant sales decline Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2024 | Q3 2023 | 9 Months 2024 | 9 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $10,622 | $15,931 | $15,488 | $21,939 | | Gross Profit | $2,375 | $3,734 | $3,201 | $5,357 | | Income (Loss) from Operations | $1,257 | $106 | $(7,185) | $(4,472) | | Net Income (Loss) Available to Common Stockholders | $1,195 | $97 | $(7,292) | $(5,348) | | Basic and Diluted EPS | $0.13 | $0.03 | $(0.99) | $(1.44) | - A significant net gain on the early termination of an operating lease of $3.87 million was recognized in Q3 2024, which turned the quarterly operating result positive10 Condensed Consolidated Statements of Stockholders' (Deficit) Equity Shareholders' equity significantly decreased to $2.7 million due to net losses, partially offset by stock sales and compensation - For the nine months ended September 30, 2024, the company's accumulated deficit increased by $7.3 million due to net losses13 - The company raised approximately $1.5 million from the sale of common stock and issued stock valued at $0.5 million for the purchase of SemiCab Inc. during the nine months ended September 30, 202413 Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly deteriorated to $7.1 million, leading to a $6.1 million overall cash decrease Cash Flow Summary (in thousands) | Activity | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(7,069) | $760 | | Net cash used in investing activities | $(53) | $(108) | | Net cash provided by (used in) financing activities | $1,040 | $(234) | | Net change in cash | $(6,082) | $418 | | Cash at end of period | $621 | $3,213 | Notes to Condensed Consolidated Financial Statements Notes detail corporate changes, the SemiCab acquisition, substantial doubt about going concern, and subsequent financing activities - The company changed its name from 'The Singing Machine Company, Inc.' to 'Algorhythm Holdings, Inc.' and its ticker from 'MICS' to 'RIME' in September 202424 - On July 3, 2024, the company acquired the assets of SemiCab, an AI-enabled software logistics business, as part of a strategic diversification202930 - The company has substantial doubt about its ability to continue as a going concern due to a cash balance of $621,000, deficit working capital of $2.1 million, and recurring operating losses as of September 30, 202446 - Subsequent to the quarter end, on October 22, 2024, the company raised $2.0 million in gross proceeds through a private placement of secured notes and common stock152 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes declining sales to reduced customer orders, notes a one-time gain on lease termination, and expresses substantial doubt about going concern due to critical liquidity - Net sales for the nine months ended September 30, 2024, decreased by $6.5 million (29.4%) compared to the prior year, primarily due to reduced orders from its largest customer, Walmart197 - A gain on early termination of an operating lease of approximately $3.9 million significantly reduced operating expenses for the third quarter of 2024194 - The company has insufficient funds to sustain operations for at least one year, creating substantial doubt about its ability to continue as a going concern; management plans to seek outside financing210211 - The company received a notice from NASDAQ for failing to meet the minimum stockholders' equity requirement of $2.5 million but believes it regained compliance with reported equity of $2.7 million208209 Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company qualifies as a smaller reporting company - Disclosure is not required for small reporting companies214 Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to material weaknesses in accounting resources, segregation of duties, and revenue recognition controls - The principal executive and financial officers concluded that disclosure controls and procedures are not effective216 - Material weaknesses identified include: - Lack of sufficient resources for reviewing material journal entries - Lack of sufficient resources for timely review of material reconciliations and proper segregation of duties - Lack of a precise three-way match process to prevent material misstatements in revenue219220221 - Management is planning remediation by addressing accounting resource requirements and implementing a "three-way" document matching procedure222 PART II. OTHER INFORMATION Legal Proceedings The company settled a lease breach lawsuit, assumed a judgment against its SemiCab acquisition, and faces a derivative shareholder action with an unestimable potential loss - A lawsuit from OAC 111 Flatiron, LLC regarding a breached lease was settled in September 2024 for a total payment of $250,000227 - The company assumed a judgment of $509,119 against SemiCab from a lawsuit with Blue Yonder, Inc. and has missed scheduled milestone payments, making the full amount potentially due229 - A derivative shareholder lawsuit was filed by Ault Lending, LLC on December 21, 2023, alleging breach of fiduciary duty; the company cannot estimate the potential loss from this action230 Risk Factors This section is not applicable as the company qualifies as a smaller reporting company - Disclosure is not required for small reporting companies232 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - None reported for the period233 Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the third quarter of 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended September 30, 2024236 Exhibits This section lists exhibits filed with the Form 10-Q, including certifications, bylaw amendments, and financing agreements
The Singing Machine pany(MICS) - 2025 Q2 - Quarterly Report