Exhibit
99.2
SMCB
Solutions Private Limited
Table
of Contents
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Shareholders
of SMCB Solutions Private Limited
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of SMCB Solutions Private Limited (the “Company”) as of March 31, 2025 and 2024,
and the related statements of operations and comprehensive income (loss), shareholders’ equity (deficit), and cash flows for the
years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of March 31, 2025 and 2024, and the results
of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United
States of America.
Substantial
Doubt about the Company’s Ability to Continue as a Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has suffered recurring losses from operations, has a working capital deficiency, and accumulated
deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters
also are 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 Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits 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 audits,
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 Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits 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 audits 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 audits
provide a reasonable basis for our opinion.
We
have served as the Company’s auditor since 2025.
/s/
Berkowitz Pollack Brant, Advisors + CPAs
New
York, New York
October
3, 2025
SMCB
Solutions Private Limited
BALANCE SHEETS
(Amounts
rounded to the nearest thousands)
| | |
As of March 31, | |
| | |
2025 | | |
2024 | |
| ASSETS
| |
| | | |
| | |
| Current Assets | |
| | | |
| | |
| Cash | |
$ | 336,000 | | |
$ | 49,000 | |
| Accounts receivable, net of allowance for expected credit losses of $8,000 and $7,000, respectively | |
| 597,000 | | |
| 289,000 | |
| Prepaid expenses and other current assets | |
| 253,000 | | |
| 157,000 | |
| Total Current Assets | |
| 1,186,000 | | |
| 495,000 | |
| | |
| | | |
| | |
| Property and equipment, net | |
| 9,000 | | |
| 11,000 | |
| Total Assets | |
$ | 1,195,000 | | |
$ | 506,000 | |
| | |
| | | |
| | |
| Liabilities and Shareholders’ Equity / (Deficit) | |
| | | |
| | |
| Current Liabilities | |
| | | |
| | |
| Accounts payable | |
$ | 284,000 | | |
$ | 687,000 | |
| Interest payable to related party | |
| 27,000 | | |
| - | |
| Accrued compensation and related benefits | |
| 6,000 | | |
| 19,000 | |
| Note payable to related party | |
| 1,640,000 | | |
| - | |
| Other current liabilities | |
| 580,000 | | |
| 292,000 | |
| Total Current Liabilities
| |
| 2,537,000 | | |
| 998,000 | |
| | |
| | | |
| | |
| Other Liabilities | |
| | | |
| | |
| Long-term provision for employee benefits, net of current portion | |
| 89,000 | | |
| 61,000 | |
| Total Liabilities | |
| 2,626,000 | | |
| 1,059,000 | |
| | |
| | | |
| | |
| Commitments and Contengencies | |
| | | |
| | |
| | |
| | | |
| | |
| Shareholders’ Equity / (Deficit) | |
| | | |
| | |
| Equity shares $0.10 par value; 10,000 shares authorized; 10,000 shares issued and outstanding at March 31, 2025 and 2024 | |
| 1,000 | | |
| 1,000 | |
| Additional paid-in capital | |
| - | | |
| - | |
| Accumulated other comprehensive income | |
| 13,000 | | |
| 1,000 | |
| Accumulated deficit | |
| (1,445,000 | ) | |
| (555,000 | ) |
| Total
Shareholders’ Equity / (Deficit) | |
| (1,431,000 | ) | |
| (553,000 | ) |
| | |
| | | |
| | |
| Total
Liabilities and Shareholders’ Equity / (Deficit) | |
$ | 1,195,000 | | |
$ | 506,000 | |
See
notes to financial statements.
SMCB
Solutions Private Limited
STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS)
(Amounts
rounded to the nearest thousands)
| | |
For the Years Ended March 31, | |
| | |
2025 | | |
2024 | |
| | |
| | |
| |
| Net Sales | |
$ | 2,653,000 | | |
$ | 1,669,000 | |
| | |
| | | |
| | |
| Cost of Sales | |
| 2,681,000 | | |
| 1,597,000 | |
| | |
| | | |
| | |
| Gross (Loss) Profit | |
| (28,000 | ) | |
| 72,000 | |
| | |
| | | |
| | |
| Operating Expenses | |
| | | |
| | |
| Salary and benefits | |
| 665,000 | | |
| 623,000 | |
| General and administrative | |
| 117,000 | | |
| 116,000 | |
| Depreciation | |
| 9,000 | | |
| 8,000 | |
| Total Operating Expenses | |
| 791,000 | | |
| 747,000 | |
| | |
| | | |
| | |
| Loss from Operations | |
| (819,000 | ) | |
| (675,000 | ) |
| | |
| | | |
| | |
| Other Expense, net | |
| | | |
| | |
| Other income | |
| 1,000 | | |
| - | |
| Other expense | |
| (38,000 | ) | |
| (2,000 | ) |
| Interest expense | |
| (34,000 | ) | |
| - | |
| Total Other Expense, net | |
| (71,000 | ) | |
| (2,000 | ) |
| | |
| | | |
| | |
| Net Loss Before Income Taxes | |
| (890,000 | ) | |
| (677,000 | ) |
| | |
| | | |
| | |
| Income tax (benefit) expense | |
| - | | |
| 13,000 | |
| | |
| | | |
| | |
| Net Loss | |
| (890,000 | ) | |
| (690,000 | ) |
| | |
| | | |
| | |
| Other Comprehensive Income / (Loss) | |
| | | |
| | |
| Foreign currency translation adjustment | |
| 12,000 | | |
| (3,000 | ) |
| | |
| | | |
| | |
| Total Comprehensive Loss | |
$ | (878,000 | ) | |
$ | (693,000 | ) |
See
notes to financial statements.
SMCB Solutions Private Limited
STATEMENTS
OF SHAREHOLDERS’ EQUITY / (DEFICIT)
For the Years Ended March 31, 2025 and 2024
(Amounts
rounded to the nearest thousands, except share amounts)
| | |
Equity | | |
Accumulated Earnings / | | |
Accumulated Other Comprehensive | | |
Total Shareholders’
Equity / | |
| | |
Shares | | |
Amount | | |
(Deficit) | | |
Income /
(Loss) | | |
(Deficit) | |
| Balance at April 1, 2023 | |
| 10,000 | | |
$ | 1,000 | | |
$ | 135,000 | | |
$ | 4,000 | | |
$ | 140,000 | |
| Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| (3,000 | ) | |
| (3,000 | ) |
| Net loss | |
| - | | |
| - | | |
| (690,000 | ) | |
| - | | |
| (690,000 | ) |
| Balance at March 31, 2024 | |
| 10,000 | | |
$ | 1,000 | | |
$ | (555,000 | ) | |
$ | 1,000 | | |
$ | (553,000 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| 12,000 | | |
| 12,000 | |
| Net loss | |
| - | | |
| - | | |
| (890,000 | ) | |
| - | | |
| (890,000 | ) |
| Balance at March 31, 2025 | |
| 10,000 | | |
$ | 1,000 | | |
$ | (1,445,000 | ) | |
$ | 13,000 | | |
$ | (1,431,000 | ) |
See
notes to financial statements.
SMCB
Solutions Private Limited
STATEMENTS
OF CASH FLOWS
(Amounts
rounded to the nearest thousands)
| | |
For the Years Ended March 31, | |
| | |
2025 | | |
2024 | |
| | |
| | |
| |
| Cash flows from operating activities | |
| | | |
| | |
| Net loss | |
$ | (890,000 | ) | |
$ | (690,000 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Provision for expected credit losses | |
| 1,000 | | |
| 7,000 | |
| Depreciation | |
| 9,000 | | |
| 8,000 | |
| Changes in Operating Assets and Liabilities: | |
| | | |
| | |
| Accounts receivable | |
| (309,000 | ) | |
| (178,000 | ) |
| Prepaid expenses and other current assets | |
| (85,000 | ) | |
| (105,000 | ) |
| Accounts payable | |
| (403,000 | ) | |
| 686,000 | |
| Interest payable | |
| 27,000 | | |
| - | |
| Accrued compensation and related benefits | |
| 15,000 | | |
| 18,000 | |
| Other current liabilities | |
| 288,000 | | |
| 195,000 | |
| Net cash used in operating activities | |
| (1,347,000 | ) | |
| (59,000 | ) |
| Cash flows from investing activities | |
| | | |
| | |
| Purchase of property and equipment | |
| (6,000 | ) | |
| (5,000 | ) |
| Net cash used in investing activities | |
| (6,000 | ) | |
| (5,000 | ) |
| Cash flows from financing activities | |
| | | |
| | |
| Proceeds from related party debt | |
| 1,640,000 | | |
| - | |
| Net cash provided by financing activities | |
| 1,640,000 | | |
| - | |
| | |
| | | |
| | |
| Effect of exchange rate changes on cash | |
| 11,000 | | |
| 21,000 | |
| | |
| | | |
| | |
| Net Change in Cash | |
| 298,000 | | |
| (43,000 | ) |
| | |
| | | |
| | |
| Cash at Beginning of Year | |
| 49,000 | | |
| 92,000 | |
| Cash at End of Year | |
$ | 347,000 | | |
$ | 49,000 | |
See
notes to financial statements.
SMCB
Solutions Private Limited
NOTES
TO FINANCIAL STATEMENTS
March
31, 2025 and 2024
(Amounts
rounded to the nearest thousands, except share amounts)
NOTE
1 – NATURE OF BUSINESS
SMCB
Solutions Private Limited (the “Company”) is a private limited company based in Bangalore, India, that operates an artificial
intelligence (“AI”) enabled software logistics and distribution unit - SemiCab (the “SemiCab business”).
On
May 2, 2025, through an equity purchase agreement, the Company became a 99.99%-owned subsidiary of SemiCab Holdings, LLC, a Nevada limited
liability company (“SemiCab Holdings”), which in turn is an 80%-owned subsidiary of Algorhythm Holdings, Inc., a Delaware
corporation (“Algorhythm Holdings”). The Company generates revenue from the performance of freight services for customers
in India and the performance of software development and information technology (IT) services for Algorhythm Holdings in the United States
of America.
NOTE
2 – LIQUIDITY, GOING CONCERN AND MANAGEMENT PLANS
As
of March 31, 2025, the Company’s cash balance was $336,000, which will not be sufficient to fund planned operations for at least
one year after the date the financial statements are issued. The Company has recurring losses from operations, an accumulated deficit
of $1,445,000, and negative operating cash flow. These factors raise substantial doubt about the Company’s ability to continue
as a going concern for at least one year after the date that the Company’s audited financial statements are issued.
The
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Accordingly, the 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.
During
the past 12 months, the Company has funded its business by obtaining loans from Algorhythm Holdings. The Company plans to continue to
finance its business operations by obtaining additional loans from Algorhythm Holdings under a loan agreement that it has with Algorhythm
Holdings. The Company has not made any arrangements to obtain additional capital from sources other than Algorhythm Holdings. As of the
date of the acquisition, May 2, 2025, a total of $2,140,000 of loans were outstanding under the loan agreement and a total of
$360,000 remained available for future borrowings under the loan agreement. The Company can provide no assurance that Algorhythm
Holdings will continue to fund its business operations or that alternative forms of financing will be available in an amount or on terms
acceptable to the Company, if at all.
In
making this assessment, management performed a comprehensive analysis of the Company’s current circumstances, including
its financial position, cash flow forecasts, and obligations and debts. Although management has a recent history of obtaining loans from
Algorhythm Holdings, the analysis used to determine the Company’s ability to continue as a going concern does not include cash
resources outside the Company’s direct control that management expects to be available within the next 12 months.
SMCB
Solutions Private Limited
NOTES
TO FINANCIAL STATEMENTS
March
31, 2025 and 2024
(Amounts
rounded to the nearest thousands, except share amounts)
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States
of America (“U.S. GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”).
All amounts have been rounded to the nearest thousands, unless otherwise indicated.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates
and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Significant items subject to such estimates
and assumptions include, but are not limited to, revenue recognition, allowance for expected credit losses, accounting for income taxes,
and obligations related to employee benefits. Management believes that the estimates and judgments upon which it relies, are reasonable
based upon information available to the Company at the time that these estimates and judgments were made. Actual results could differ
from those estimates.
Cash
and Restricted Cash
The
Company considers cash to include cash in banks and deposits with financial institutions in India 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 by Deposit Insurance and Credit Guarantee Corporation for India. Generally, these deposits may be withdrawn
upon demand.
In
addition, restricted cash held by the Company was $11,000 and $-0- as of March 31, 2025 and 2024, respectively. Restricted cash held
by the Company related to fixed deposits that also serve as guarantees. These amounts are segregated and recorded in prepaid expenses
and other current assets of the balance sheets.
SMCB
Solutions Private Limited
NOTES
TO FINANCIAL STATEMENTS
March
31, 2025 and 2024
(Amounts
rounded to the nearest thousands, except share amounts)
Supplemental
Cash Flow Information
The
following table shows supplemental cash flow information:
| | |
Year Ended March 31, | |
| | |
2025 | | |
2024 | |
| Reconciliation
of cash and restricted cash | |
| | | |
| | |
| Cash | |
$ | 336,000 | | |
$ | 49,000 | |
| Restricted
cash included in prepaid expenses and other current assets | |
| 11,000 | | |
| - | |
| |
$ | 347,000 | | |
$ | 49,000 | |
| |
| | | |
| | |
| Supplemental
disclosure of cash flow information | |
| | | |
| | |
| Cash
paid for income tax | |
$ | - | | |
$ | - | |
| Cash
paid for interest | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
| Supplemental
disclosure of non-cash financing activities | |
| | | |
| | |
| Settlement
of accounts receivable in exchange for debt with related party | |
$ | 809,000 | | |
$ | - | |
Accounts
Receivable and Allowance for Expected Credit Losses
The
Company’s accounts receivable balance is derived from transportation services and digital support provided to customers. As part
of this balance, the Company also recognizes revenue earned but not yet invoiced to customers, recorded as unbilled or accrued revenue.
| | |
As of March 31, | |
| | |
2025 | | |
2024 | |
| Accounts receivable | |
$ | 273,000 | | |
$ | 32,000 | |
| Accounts receivable – related party | |
| - | | |
| 212,000 | |
| Accrued Revenue -- related party | |
| 36,000 | | |
| 52,000 | |
| Accrued revenue | |
| 296,000 | | |
| - | |
| Allowance for expected credit losses | |
| (8,000 | ) | |
| (7,000 | ) |
| | |
$ | 597,000 | | |
$ | 289,000 | |
The
Company recognizes an allowance for expected credit losses at the time the receivable balance is recorded, based on its estimate of expected
credit losses. This estimate is adjusted over the life of the receivable as circumstances evolve. The Company evaluates both specific
credit risks and broader portfolio-level trends by considering historical collection experience, current and forecasted economic conditions,
and other relevant factors. At each reporting period, the Company records a provision by applying a calculated percentage to the outstanding
accounts receivable balance and revises this estimate as necessary. Accounts receivable balances
are written-off against the allowance for expected credit losses after all means of collection have been exhausted and the potential
for recovery is considered remote.
SMCB Solutions Private Limited
NOTES TO FINANCIAL STATEMENTS
March 31, 2025 and 2024
(Amounts rounded to the nearest thousands, except
share amounts)
On
July 13, 2023, the Company entered into a factoring arrangement with Hinduja Leyland Finance Ltd. (HLF), a Non-Banking Financial
Company (NBFC) in India, for the purpose of accelerating collections on accounts receivable. Under the agreement, specific receivables
are sold to HLF in exchange for upfront payment, subject to fees and terms. The Company terminated this factoring arrangement in March
2024. As of March 31, 2025 and 2024, the net liability relating for factoring activity, included in other current liabilities,
was $-0- and $8,000, respectively.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to credit risk consist primarily of cash, accounts receivable and advance payments to
vendors. The Company holds cash at financial institutions that the Company believes are high credit quality financial institutions and
limits the amount of credit exposure with any one bank and conducts ongoing evaluations of the creditworthiness of the banks with which
it does business. These deposits are typically in excess of insured limits.
As
of March 31, 2025, and March 31, 2024, there were three and one customers that represented 10% or greater of the Company’s accounts
receivable balance, respectively. With respect to the Company’s revenue, there were three customers that each accounted for more
than 10% of total revenue for the years ended March 31, 2025, and 2024, respectively.
The
following table shows the percentage of revenue and accounts receivable derived from each customer exceeding 10% of the
Company’s revenue and accounts receivable, respectively:
| | |
Revenue | | |
Accounts Receivable | |
| Major Customers | |
Year Ended March 31, | | |
As of March 31, | |
| | |
2025 | | |
2024 | | |
2025 | | |
2024 | |
| Customer 1 | |
| 38 | % | |
| 31 | % | |
| | (1) | |
| | (1) |
| Customer 2 - Related party | |
| 24 | % | |
| 41 | % | |
| | (1) | |
| 89 | % |
| Customer 3 | |
| 14 | % | |
| 12 | % | |
| 29 | % | |
| | (1) |
| Customer 4 | |
| | (1) | |
| | (1) | |
| 36 | % | |
| | (1) |
| Customer 5 | |
| | (1) | |
| | (1) | |
| 11 | % | |
| | (1) |
(1)
Less than 10%
Prepaid
Expenses and Other Current Assets
In
accordance with U.S. GAAP, prepaid expenses, such as prepaid rent, insurance, or licenses, are reported as assets when payments are made
in advance for goods or services to be consumed in future periods. These amounts are amortized over the expected benefit period, typically
on a straight-line basis, and adjusted for any impairment or non-refundable portions. Material prepaid balances are classified as current assets based on their expected realization period, with significant judgments or changes in amortization disclosed
when relevant.
Advance
payments to vendors, including prepay or cash on delivery (COD) arrangements, are recognized as prepaid assets until such goods or services
are received. Upon delivery, the amounts are reclassified to the appropriate expense account based on the nature of the transaction.
The Company periodically reviews the carrying value of the prepaid expenses and other current assets to determine if any amounts are
no longer recoverable and records an expense in the period such determination is made.
SMCB Solutions Private Limited
NOTES TO FINANCIAL STATEMENTS
March 31, 2025 and 2024
(Amounts rounded to the nearest thousands, except
share amounts)
Related
Party Transactions
In
compliance with U.S. GAAP, the Company discloses material related party transactions, including the nature of such relationships, where
they may impact the Company’s understanding of the financial position, results of operations, or cash flows. These include dealings
with affiliates, principal owners, management, and their immediate families. The Company identifies and discloses the nature of the relationship,
terms of the transactions, and any outstanding balances. Transactions are not presumed to be at arm’s length and must be substantiated
if claimed as such. Disclosure is made when the relationship or transaction could impact the understanding of the Company’s financial
position or results of operations.
The
Company provides monthly technical support and development services to its related party, SemiCab, Inc., a U.S. based freight
services provider. The revenue generated is accrued and recognized when earned. As of March 31, 2025 and 2024, the Company’s related
party revenue was $666,000 and $674,000, respectively.
Foreign
Currency
The
functional currency of the Company is the Indian Rupee. The financial statements of the Company were translated into United States
dollars in accordance with Accounting Standards Codification (“ASC 830”), Foreign Currency Matters. Assets and liabilities
are translated at the exchange rate on the balance sheet date, while revenues, expenses, and cash flows use average rates over each reporting
periods. Equity components are translated at historical rates. Transaction gains and losses arising from exchange rate differences are
recognized in the statements of operations and comprehensive income / (loss). Translation adjustments are included in accumulated
other comprehensive income / (loss) within shareholders’ deficit in the Company’s balance sheets. As cash flow translations
use average rates, related balances may differ from changes reported on the balance sheets.
Property
and Equipment, Net
Property
and equipment is 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
method.
SMCB Solutions Private Limited
NOTES TO FINANCIAL STATEMENTS
March 31, 2025 and 2024
(Amounts rounded to the nearest thousands, except
share amounts)
Leases
The
Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use (“ROU”) assets represent
the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation
to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date. The liability
is equal to the present value of the remaining minimum lease payments. The asset is based on the liability, subject to certain adjustments.
Operating leases result in straight-line expense (similar to operating leases under the prior accounting standard) while finance leases
result in a front-loaded expense pattern (similar to capital leases under the prior accounting standard). As the interest rate implicit
in the Company’s operating leases is not readily determinable, the Company utilizes its incremental borrowing rate to discount
the lease payments. The Company utilizes the implicit rate for its finance leases. When lease terms are 12 months or less and meet the
criteria for short-term lease classification, no ROU asset or lease liability are recognized.
Long
Lived Assets
The
Company reviews long-lived assets for impairment in accordance with ASC Topic 360, Property, Plant and Equipment (“ASC 360”).
The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying
amount of the assets might not be recoverable. Factors that the Company considers in deciding when to perform an impairment review include
significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant
changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability,
the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the 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 had no impairment loss related to long-lived assets for the
years ended March 31, 2025 and 2024.
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 Company’s assumptions about the factors that market participants
would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
| ● | Level
1: Quoted market prices in active markets for identical assets or liabilities. |
SMCB Solutions Private Limited
NOTES TO FINANCIAL STATEMENTS
March 31, 2025 and 2024
(Amounts rounded to the nearest thousands, except
share amounts)
| ● | 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 Company’s valuations
are observable or can be derived principally from or corroborated with observable market
data for substantially the full term of the assets or liabilities. Level 2 inputs also include
quoted prices that are 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 receivable, accounts payable and notes payable –
related party approximate their fair value as recorded on the balance sheets.
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.
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
Company’s 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 customer’s
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
Company’s contracts with customers consist of one performance obligation, which is the performance of services. The Company’s
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.
SMCB Solutions Private Limited
NOTES TO FINANCIAL STATEMENTS
March 31, 2025 and 2024
(Amounts rounded to the nearest thousands, except
share amounts)
All
revenues earned from contracts are presented net of discounts, allowances, and applicable taxes.
The
Company utilizes independent contractors and third-party carriers to perform transportation services. In accordance with ASC Topic 606,
Revenue Recognition: Principal Agent Considerations, the Company evaluates the terms in the agreements with its customers and vendors
to determine whether or not the Company acts as the principal or as an agent in the arrangement with each party respectively. The determination
of whether to record the revenue on a gross or net basis depends upon whether the Company has control over the goods prior to transferring
it. Based on the Company’s evaluation of the control model, it is determined that for majority of the arrangements, the Company
is considered the principal where revenue is recognized on a gross basis. In certain arrangements, where the Company acts as an agent,
such revenues are recognized net of the cost of the purchased transportation.
Cost
of Revenue
Costs
of revenue include all directly related costs to deliver services, which includes independent contractor and third-party drivers, insurance,
truck maintenance costs, equipment rental and other directly related costs. Such costs are expensed as incurred.
Sales
Taxes
Goods
and Services Tax (“GST”) and other similar indirect taxes are levied by various jurisdictions on the purchase of goods and
services. The Company accounts for such taxes on a net basis, meaning revenue and expenses are recorded exclusive of recoverable sales
taxes. Sales taxes collected from customers are excluded from revenue, and taxes paid to suppliers are excluded from expenses where they
are recoverable from tax authorities.
For
non-recoverable sales taxes incurred:
● If
related to the acquisition or construction of an asset, the non-recoverable amount is capitalized as part of the asset’s
cost.
●
If related to other expenditures, the non-recoverable amount is expensed as incurred.
Sales
tax amounts payable to or recoverable from tax authorities are presented within prepaid expenses and other current assets and/or other
current liabilities on the balance sheets.
Income
Taxes
The
Company follows the provisions of ASC 740, Accounting 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 basis. 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.
SMCB Solutions Private Limited
NOTES TO FINANCIAL STATEMENTS
March 31, 2025 and 2024
(Amounts rounded to the nearest thousands, except
share amounts)
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 March 31, 2025, and 2024, there were no uncertain tax positions that resulted in any adjustment to the Company’s 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.
Recent
Accounting Pronouncements
In
December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740): Improvements
to Income Tax Disclosures. ASU 2023-09 is intended
to enhance the usefulness of income tax disclosures by requiring entities to disclose specific rate reconciliations, amount of income
taxes separate by federal, state and foreign tax jurisdictions, and the amount of income (loss) from continuing operations before income
tax expense (benefit) disaggregated between federal, state and foreign. ASU 2023-09 is effective for the Company for its fiscal year
beginning April 1, 2025, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its
financial statements and related disclosures.
In
November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation
Disclosures (Subtopic 220-40). This ASU requires disclosure on an annual and interim basis, in the notes to the financial statements,
of disaggregated information about specific categories underlying certain income statement expense line items. The guidance is effective
for annual periods beginning after December 15, 2026, and interim periods with annual reporting periods beginning after December 15,
2027, on a retrospective basis. The Company is currently evaluating the impact of this ASU on its 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
Company’s operations or that no material effect is expected on its financial statements as a result of future adoption.
SMCB Solutions Private Limited
NOTES TO FINANCIAL STATEMENTS
March 31, 2025 and 2024
(Amounts rounded to the nearest thousands, except
share amounts)
NOTE
4 – CONTRACT ASSETS AND LIABILITIES
Contract
assets include unbilled amounts resulting from in-transit shipments, as the Company has an unconditional right to payment only when services
have been completed (i.e., shipments have been delivered). Amounts do not exceed their net realizable value. Contract assets are generally
classified as current, and the full balance is converted each quarter based on the short-term nature of the transactions.
Contract
liabilities consist of advance payments as well as deferred revenue. Advance payments represent payments received from customers that
will be earned over the contract term. Deferred revenue represents the amount due from customers related to in-transit shipments that
has not yet been recognized as revenue based on progress. The Company classifies advance payments and billings in excess of revenue as
either current or long-term, depending on the period over which the amount will be earned, and deferred revenue as current based on the
short-term nature of the transactions.
As
of March 31, 2025 and 2024, contract assets were $332,000 (including $36,000 to a related party) and $52,000 (none to a related
party), respectively, and were recorded within “account receivables, net of allowance”, on the balance sheets.
As
of March 31, 2025 and 2024, contract liabilities were $196,000 (including $170,000 to a related party) and $42,000 (all to a related
party), respectively, and were recorded within “other current liabilities”, on the balance sheets.
NOTE
5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets consists of the following:
| | |
As of March 31, | |
| | |
2025 | | |
2024 | |
| Goods and services tax | |
$ | 150,000 | | |
$ | 118,000 | |
| Vendor advance | |
| 59,000 | | |
| - | |
| Security deposits | |
| 20,000 | | |
| 15,000 | |
| Fixed deposit – bank guarantee | |
| 11,000 | | |
| - | |
| Prepaid expenses | |
| 13,000 | | |
| 12,000 | |
| Other | |
| - | | |
| 12,000 | |
| | |
$ | 253,000 | | |
$ | 157,000 | |
SMCB Solutions Private Limited
NOTES TO FINANCIAL STATEMENTS
March 31, 2025 and 2024
(Amounts rounded to the nearest thousands, except
share amounts)
NOTE
6 – PROPERTY AND EQUIPMENT, NET
A
summary of the Company’s property and equipment, net is as follows:
| | |
Useful | |
As of March 31, | |
| | |
Life | |
2025 | | |
2024 | |
| Computer and office equipment | |
3-5 years | |
$ | 39,000 | | |
$ | 32,000 | |
| Less: accumulated depreciation | |
| |
| (30,000 | ) | |
| (21,000 | ) |
| | |
| |
$ | 9,000 | | |
$ | 11,000 | |
The
Company recorded depreciation expense of $9,000 and $8,000 in relation to the depreciation of property and equipment for the years ended
March 31, 2025 and 2024 respectively.
NOTE
7 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued
expenses and other current liabilities consists of the following:
| | |
As of March 31, | |
| | |
2025 | | |
2024 | |
| Goods and services tax | |
$ | 66,000 | | |
$ | 38,000 | |
| Provision for freight expenses | |
| 285,000 | | |
| 80,000 | |
| Customer advance | |
| 26,000 | | |
| - | |
| Customer advance to related party | |
| 170,000 | | |
| - | |
| Deferred revenue | |
| - | | |
| 42,000 | |
| Salary payable | |
| - | | |
| 97,000 | |
| Other payable | |
| 33,000 | | |
| 35,000 | |
| | |
$ | 580,000 | | |
$ | 292,000 | |
NOTE
8 – NOTE PAYABLE TO RELATED PARTIES
The
Company is a party to a loan agreement with Algorhythm Holdings dated March 22, 2024. Under the loan agreement, Algorhythm Holdings agreed
to loan up to $2,500,000 to the Company. The loans are anticipated to be made in tranches. Disbursements of any tranches are fully at
the discretion of Algorhythm Holdings. 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.
The
Company is also a party to an intercompany master services agreement (“MSA”) whereby the Company agrees to provide IT software
development services to Algorhythm Holdings. In exchange, under the MSA, Algorhythm Holdings grants intellectual property rights to the
Company to use the Company’s 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. Further, MSA requires a royalty rate of 0.5% of
gross annal revenue recognized associated with the licensed technology. 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.
SMCB Solutions Private Limited
NOTES TO FINANCIAL STATEMENTS
March 31, 2025 and 2024
(Amounts rounded to the nearest thousands, except
share amounts)
During
the year ended March 31, 2025, Algorhythm Holdings made loans to the Company in the amount of $2,449,000 and the Company charged $809,000
to Algorhythm Holdings for services that were performed under the MSA, which charges offset amounts due under the loan with Algorhythm
Holdings. As a result, as of March 31, 2025, a total of $1,640,000 of loans were outstanding under the loan agreement and a total of
$860,000 remained available for future borrowings under the loan agreement. As of March 31, 2025, the Company had not made any interest
payments due under the loan agreement. As a result, the loans were in default as of March 31, 2025.
Ajesh
Kapoor serves as the Director of the Company and serves as the Chief Executive Officer, the Chief Technology Officer and a member of
the Board of Managers of SemiCab Holdings. He also serves as a member of the Board of Directors of Algorhythm Holdings.
NOTE
9 – EMPLOYEE BENEFIT PLANS
Defined
Benefit Plan
The
Company maintains certain defined benefit plans covering eligible employees in accordance with local statutory requirements and business
practices. The Gratuity Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation, or termination of
employment, of an amount based on the respective employee’s salary and the tenure of employment with the Company. The Leave Encashment
Plan provides a lump-sum payment to employees when they leave the Company based on a multiple of their final monthly salary. Both the
Gratuity and Leave Encashment Plans are unfunded with obligation amounts determined by actuarial valuations. These obligation amounts
are recorded on the balance sheets within “Accrued compensation and related benefits” and “Long-term provision for
employee benefits, net of the current portion”. All expenses associated with these plans are recorded within “Salary and
benefits” on the statements of operations and comprehensive income / (loss).
Employer
benefit obligations and related changes for the years as follows:
| | |
As of March 31, | |
| | |
2025 | | |
2024 | |
| Employee benefit obligations as of April 1 | |
$ | 80,000 | | |
$ | 60,000 | |
| Employee benefits paid | |
| - | | |
| - | |
| Employer expenses | |
| 15,000 | | |
| 20,000 | |
| Employee benefit obligations as of March 31 | |
$ | 95,000 | | |
$ | 80,000 | |
Provident
Fund Benefits
Certain
categories of employees of the Company receive benefits from a Provident Fund, a defined contribution plan. Both the employee and employer
each make monthly contributions to a government administered fund equal to 12% of the covered employee’s qualifying salary. The
Company has no further obligations under the plan beyond its monthly contributions. The Company contributed $6,000 to the Provident Fund
plan for each of the years ended March 31, 2025 and 2024, respectively.
SMCB Solutions Private Limited
NOTES TO FINANCIAL STATEMENTS
March 31, 2025 and 2024
(Amounts rounded to the nearest thousands, except
share amounts)
NOTE
10 – COMMITMENTS AND CONTINGENCIES
Lease
Commitments
The
Company entered into an operating lease agreement for its corporate headquarters located in Bangalore, India. The lease is for a term
of less than 12 months. Base rent under the lease is approximately $4,000 per month. Lease expense for the Company’s operating
lease is recognized on a straight-line basis over the lease term and was included in general and administrative expenses in the Company’s
statement of operations. Lease expense was $51,000 and $48,000 for the years ended March 31, 2025, and 2024, respectively.
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
accrues 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 the likelihood
of there being and the estimated amount of a loss related to such matters.
NOTE
11 – INCOME TAXES
Income
tax (benefit) expense is comprised of the following:
| | |
Year Ended March 31, | |
| | |
2025 | | |
2024 | |
| Current tax expense | |
$ | - | | |
$ | - | |
| Deferred tax (benefit) expense | |
| - | | |
| 13,000 | |
| Income tax (benefit) expense | |
$ | - | | |
$ | 13,000 | |
SMCB Solutions Private Limited
NOTES TO FINANCIAL STATEMENTS
March 31, 2025 and 2024
(Amounts rounded to the nearest thousands, except
share amounts)
The
components of deferred income taxes as follows:
| | |
As of March 31, | |
| | |
2025 | | |
2024 | |
| Accrued liabilities | |
$ | 24,000 | | |
$ | 21,000 | |
| Net operating losses | |
| 286,000 | | |
| 142,000 | |
| Total deferred tax assets | |
| 310,000 | | |
| 163,000 | |
| Less: valuation allowance | |
| (310,000 | ) | |
| (163,000 | ) |
| Total deferred tax assets, net | |
$ | - | | |
$ | - | |
The
Company’s operations are primarily based out of the Indian jurisdiction. There are unused tax losses amounting to $1,126,000 and
$56,000 at March 31, 2025 and March 31, 2024, respectively. The tax benefit for these losses, if not utilized, will expire on various
dates starting from financial year 2024 to 2031. Under the Indian jurisdiction, a period of 3 financial years remains open to assessment
by tax authorities or a period of 10 financial years if the assessing officer has evidence that undeclared income exceeds a certain limit.
The
Company has recorded a valuation allowance on the deferred tax asset resulting from such losses due to Company’s history of past
losses and lack of conclusive evidence to support the view that sufficient taxable profit will be generated in the future by the Company
to offset such losses.
NOTE
12 – SUBSEQUENT EVENTS
Acquisition
of the Company
On
May 2, 2025, Algorhythm Holdings 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 of the Company, representing 99.99% of the issued
and outstanding equity shares of the Company, from SemiCab, Inc. for $1,750,000, the payment of which amount was evidenced by the issuance
of a promissory note by Algorhythm Holdings to SemiCab, Inc., and (ii) Algorhythm Holdings purchased the 20% membership interest in SemiCab
Holdings then held by SemiCab, Inc. for aggregate consideration consisting of 119,742 shares of Algorhythm Holdings’ common stock
that were issued to SemiCab, Inc. The acquisition was completed on May 2, 2025.
Additional
Loans Under Loan Agreement
During
the period commenced April 1, 2025 and ended May 2, 2025, Algorhythm Holdings made loans to the Company in the amount of $632,000
and the Company charged $132,000 for services to Algorhythm Holdings that were performed under the MSA, which charges offset amounts
due under the loan agreement with the Company. As of May 2, 2025, a total of $2,140,000 of loans were outstanding under the loan
agreement and a total of $360,000 remained available for future borrowings under the loan agreement. As of May 2, 2025, the Company
had not made any interest payments due under the loan agreement. As a result, the loans were in default as of May 2, 2025.
Amendment
to the Loan Agreement
On
May 26, 2025, the Company entered into an amendment to the loan agreement with Algorhythm Holdings pursuant to which the parties agreed
to increase the maximum loan amount available to the Company under loan agreement from $2,500,000 to $5,000,000.
Exhibit 99.3
Unaudited
Pro Forma Condensed Combined Financial Statements
On
May 2, 2025 (the “Closing Date”), Algorhythm Holdings, Inc. (the “Company”) and its subsidiary, SemiCab Holdings,
LLC, a Nevada limited liability company (“SemiCab Holdings”), entered into an equity purchase agreement with SemiCab Inc.,
a Delaware corporation, pursuant to which: (i) SemiCab Holdings purchased 9,999 shares of the issued and outstanding equity shares, Rs.
10 par value, of SMCB Solutions Private Limited, an Indian company (“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 SemiCab, Inc., and (ii) the Company purchased the 20% membership interest in SemiCab Holdings then held by SemiCab, Inc. for aggregate
consideration consisting of 119,742 shares of the Company’s common stock, par value $0.01 per share.
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, with
three quarters of each such grant subject to certain forfeiture rights. Additionally, Mr. Kapoor was granted the right to serve as a
member of the board of directors of the Company and the right to appoint an additional member to the board of directors upon the occurrence
of certain specified events.
Also
on the Closing Date, the Company, 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.
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 promissory note includes customary events of default, such as the failure to pay principal or interest when due
and the occurrence of certain bankruptcy events. If an event of default occurs, SemiCab, Inc. has the right to declare all outstanding
amounts immediately due and payable. In the event any payment is not made when due, regardless of whether it constitutes an event of
default, the amount of such payment will accrue interest at a default rate of eight percent per annum.
The
accompanying unaudited pro forma condensed combined financial information of the Company is presented to illustrate the estimated effects
of the acquisition of SMCB by the Company on May 2, 2025 and should be read in conjunction with:
| ● | the
Company’s audited financial statements and accompanying notes as of and for the year
ended December 31, 2024 included in the Company’s Annual Report on Form 10-K, filed
with the Securities Exchange Commission (“SEC”) on April 15, 2025; |
| | | |
| ● | the
Company’s unaudited financial statements and accompanying notes as of and for the three-month
period ended March 31, 2025 included in the Company’s Quarterly Report on Form 10-Q,
filed with the SEC on May 15, 2025; |
| | | |
| ● | SMCB’s
unaudited Statements of Operations and the accompanying notes for the three months ended
March 31, 2025 and the year ended December 31, 2024; and |
| | | |
| ● | SMCB’s
audited Balance Sheet and the accompanying notes at March 31, 2025, included elsewhere in
this Current Report on Form 8-K/A. |
Algorhythm
Holdings, Inc. and Subsidiaries
Unaudited
Pro Forma Condensed Combined Balance Sheet
As
of March 31, 2025
| | |
| | |
| | |
| | |
Algorhythm | |
| | |
Algorhythm | | |
SMCB | | |
| | |
Holdings | |
| | |
Holdings | | |
Solutions | | |
Pro Forma | | |
Pro Forma, | |
| | |
Historical | | |
Historical | | |
Adjustments | | |
As Adjusted | |
| | |
| | |
| | |
| | |
| |
| Assets | |
| | | |
| | | |
| | | |
| | |
| Current assets | |
| | | |
| | | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 3,296,000 | | |
$ | 336,000 | | |
| | | |
$ | 3,632,000 | |
| Accounts receivable, net | |
| 1,385,000 | | |
| 597,000 | | |
| (170,000 | )(h) | |
| 1,776,000 | |
| | |
| | | |
| | | |
| (36,000 | )(h) | |
| | |
| Accounts receivable, related party | |
| 357,000 | | |
| - | | |
| | | |
| 357,000 | |
| Note receivable, related party | |
| 1,201,000 | | |
| - | | |
| (1,640,000 | )(d) | |
| - | |
| | |
| | | |
| - | | |
| 439,000 | (j) | |
| | |
| Inventory | |
| 1,895,000 | | |
| - | | |
| | | |
| 1,895,000 | |
| Returns asset | |
| 751,000 | | |
| - | | |
| | | |
| 751,000 | |
| Prepaid expenses and other current assets | |
| 126,000 | | |
| 253,000 | | |
| | | |
| 379,000 | |
| Total current assets | |
| 9,011,000 | | |
| 1,186,000 | | |
| | | |
| 8,790,000 | |
| | |
| | | |
| | | |
| | | |
| | |
| Property and equipment, net | |
| 253,000 | | |
| 9,000 | | |
| | | |
| 262,000 | |
| Other non-current assets | |
| 81,000 | | |
| - | | |
| | | |
| 81,000 | |
| Intangible assets, net | |
| 330,000 | | |
| - | | |
| | | |
| 330,000 | |
| Goodwill | |
| 786,000 | | |
| - | | |
| 3,764,000 | (b) | |
| 4,550,000 | |
| Total assets | |
$ | 10,461,000 | | |
$ | 1,195,000 | | |
| | | |
$ | 14,013,000 | |
| | |
| | | |
| | | |
| | | |
| | |
| Liabilities and shareholders’ equity (deficit) | |
| | | |
| | | |
| | | |
| | |
| Current liabilities | |
| | | |
| | | |
| | | |
| | |
| Accounts payable and accrued expenses | |
$ | 3,715,000 | | |
$ | 284,000 | | |
| 150,000 | (a) | |
$ | 4,113,000 | |
| | |
| | | |
| | | |
| (36,000 | )(i) | |
| | |
| Interest payable to related party | |
| - | | |
| 27,000 | | |
| | | |
| 27,000 | |
| Refund due to customer | |
| 630,000 | | |
| - | | |
| | | |
| 630,000 | |
| Reserve for sales returns | |
| 1,742,000 | | |
| - | | |
| | | |
| 1,742,000 | |
| Accrued compensation and accrued benefits | |
| - | | |
| 6,000 | | |
| | | |
| 6,000 | |
| Current portion of notes payable to related parties | |
| 551,000 | | |
| 1,640,000 | | |
| (1,640,000 | )(d) | |
| 2,051,000 | |
| | |
| | | |
| | | |
| 1,500,000 | (c) | |
| | |
| Other current liabilities | |
| 97,000 | | |
| 580,000 | | |
| (170,000 | )(h) | |
| 507,000 | |
| Total current liabilities | |
| 6,735,000 | | |
| 2,537,000 | | |
| | | |
| 9,076,000 | |
| | |
| | | |
| | | |
| | | |
| | |
| Notes payable to related parties, net of current portion | |
| 385,000 | | |
| - | | |
| 250,000 | (c) | |
| 635,000 | |
| Long-term provision for employee benefits, net of current | |
| - | | |
| 89,000 | | |
| | | |
| 89,000 | |
| Total liabilities | |
| 7,120,000 | | |
| 2,626,000 | | |
| | | |
| 9,800,000 | |
| | |
| | | |
| | | |
| | | |
| | |
| Commitments and contingencies | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Shareholders’ equity (deficit) | |
| | | |
| | | |
| | | |
| | |
| Preferred stock | |
| - | | |
| - | | |
| | | |
| - | |
| Common stock | |
| 24,000 | | |
| - | | |
| | | |
| 24,000 | |
| Equity shares | |
| - | | |
| 1,000 | | |
| (1,000 | )(f) | |
| - | |
| Additional paid-in capital | |
| 63,577,000 | | |
| - | | |
| 316,000 | (e) | |
| 67,342,000 | |
| | |
| | | |
| | | |
| 3,449,000 | (b),
(f), (e) | |
| | |
| Accumulated other comprehensive loss | |
| - | | |
| 13,000 | | |
| | | |
| 13,000 | |
| Accumulated deficit | |
| (58,363,000 | ) | |
| (1,445,000 | ) | |
| (1,461,000 | )(a), (c), (j) | |
| (61,269,000 | ) |
| Non-controlling interest | |
| (1,139,000 | ) | |
| - | | |
| | | |
| (1,139,000 | ) |
| Treasury stock | |
| (758,000 | ) | |
| - | | |
| | | |
| (758,000 | ) |
| Total shareholders’ equity (deficit) | |
| 3,341,000 | | |
| (1,431,000 | ) | |
| | | |
| 4,213,000 | |
| | |
| | | |
| | | |
| | | |
| | |
| Total liabilities and shareholders’ equity (deficit) | |
$ | 10,461,000 | | |
$ | 1,195,000 | | |
| | | |
$ | 14,013,000 | |
The accompanying notes are an integral part of these financial statements
Algorhythm
Holdings, Inc. and Subsidiaries
Unaudited
Pro Forma Condensed Combined Statement of Operations
For
the Three Months Ended March 31, 2025
| | |
| | |
| | |
| |
|
Algorhythm | |
| | |
Algorhythm | | |
SMCB | | |
| |
|
Holdings | |
| | |
Holdings | | |
Solutions | | |
Pro Forma | |
|
Pro Forma, | |
| | |
Historical | | |
Historical | | |
Adjustments | |
|
As Adjusted | |
| | |
| | |
| | |
| |
|
| |
| Net sales | |
$ | 1,993,000 | | |
$ | 997,000 | | |
$ | (183,000 | )(k) |
|
$ | 2,807,000 | |
| | |
| | | |
| | | |
| | |
|
| | |
| Cost of goods sold | |
| 1,493,000 | | |
| 937,000 | | |
| | |
|
| 2,430,000 | |
| Gross profit | |
| 500,000 | | |
| 60,000 | | |
| | |
|
| 377,000 | |
| | |
| | | |
| | | |
| | |
|
| | |
| Operating expenses | |
| | | |
| | | |
| | |
|
| | |
| Selling expenses | |
| 764,000 | | |
| - | | |
| | |
|
| 764,000 | |
| General and administrative expenses | |
| 2,546,000 | | |
| 226,000 | | |
| (159,000 | )(k) |
|
| 2,613,000 | |
| Total operating expenses | |
| 3,310,000 | | |
| 226,000 | | |
| | |
|
| 3,377,000 | |
| | |
| | | |
| | | |
| | |
|
| | |
| Loss from operations | |
| (2,810,000 | ) | |
| (166,000 | ) | |
| | |
|
| (3,000,000 | ) |
| | |
| | | |
| | | |
| | |
|
| | |
| Other expenses | |
| | | |
| | | |
| | |
|
| | |
| Change in fair value of warrant liability | |
| (6,468,000 | ) | |
| - | | |
| | |
|
| (6,468,000 | ) |
| Interest expense | |
| (16,000 | ) | |
| - | | |
| | |
|
| (16,000 | ) |
| Other expense | |
| - | | |
| (2,000 | ) | |
| | |
|
| (2,000 | ) |
| Total other expenses | |
| (6,484,000 | ) | |
| (2,000 | ) | |
| | |
|
| (6,486,000 | ) |
| | |
| | | |
| | | |
| | |
|
| | |
| Net loss | |
| (9,294,000 | ) | |
| (168,000 | ) | |
| | |
|
| (9,486,000 | ) |
| | |
| | | |
| | | |
| | |
|
| | |
| Net loss attributable to non-controlling interest | |
| 103,000 | | |
| - | | |
| | |
|
| 103,000 | |
| | |
| | | |
| | | |
| | |
|
| | |
| Net loss available to common stockholders | |
$ | (9,191,000 | ) | |
$ | (168,000 | ) | |
| | |
|
$ | (9,383,000 | ) |
| | |
| | | |
| | | |
| | |
|
| | |
| Net loss per common share | |
| | | |
| | | |
| | |
|
| | |
| Basic and diluted | |
$ | (4.66 | ) | |
| - | | |
| | |
|
$ | (4.48 | ) |
| | |
| | | |
| | | |
| | |
|
| | |
| Weighted average common and common equivalent shares | |
| | | |
| | | |
| | |
|
| | |
| Basic and diluted | |
| 1,972,869 | | |
| - | | |
| 119,742 | (e) |
|
| 2,092,611 | |
The
accompanying notes are an integral part of these financial statements
Algorhythm Holdings, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2024
| | |
| | |
| | |
| |
|
Algorhythm | |
| | |
Algorhythm | | |
SMCB | | |
| |
|
Holdings | |
| | |
Holdings | | |
Solutions | | |
Pro Forma | |
|
Pro Forma, | |
| | |
Historical | | |
Historical | | |
Adjustments | |
|
As Adjusted | |
| | |
| | |
| | |
| |
|
| |
| Net sales | |
$ | 23,494,000 | | |
| 2,582,000 | | |
| (655,000 | )(k) |
|
$ | 25,421,000 | |
| | |
| | | |
| | | |
| | |
|
| | |
| Cost of goods sold | |
| 18,713,000 | | |
| 2,792,000 | | |
| | |
|
| 21,505,000 | |
| Gross profit | |
| 4,781,000 | | |
| (210,000 | ) | |
| | |
|
| 3,916,000 | |
| | |
| | | |
| | | |
| | |
|
| | |
| Operating expenses | |
| | | |
| | | |
| | |
|
| | |
| Selling expenses | |
| 2,874,000 | | |
| - | | |
| | |
|
| 2,874,000 | |
| General and administrative expenses | |
| 12,240,000 | | |
| 578,000 | | |
| 170,000 | (l), (m) |
|
| 11,979,000 | |
| | |
| | | |
| | | |
| (570,000 | )(k) |
|
| | |
| | |
| | | |
| | | |
| (439,000 | )(j) |
|
| | |
| Impairment of goodwill | |
| 3,592,000 | | |
| - | | |
| | |
|
| 3,592,000 | |
| Total operating expenses | |
| 18,706,000 | | |
| 578,000 | | |
| | |
|
| 18,445,000 | |
| | |
| | | |
| | | |
| | |
|
| | |
| Loss from operations | |
| (13,925,000 | ) | |
| (788,000 | ) | |
| | |
|
| (14,529,000 | ) |
| | |
| | | |
| | | |
| | |
|
| | |
| Other expenses | |
| | | |
| | | |
| | |
|
| | |
| Change in fair value of warrant liability | |
| 334,000 | | |
| - | | |
| | |
|
| 334,000 | |
| Loss on issuance of warrants | |
| (8,889,000 | ) | |
| - | | |
| | |
|
| (8,889,000 | ) |
| Extinguishment of debt | |
| | | |
| | | |
| 1,640,000 | (d) |
|
| - | |
| | |
| | | |
| | | |
| (1,640,000 | )(d) |
|
| | |
| Interest expense | |
$ | (1,887,000 | ) | |
| - | | |
| | |
|
| (1,887,000 | ) |
| Other expense | |
| - | | |
| 5,000 | | |
| | |
|
| 5,000 | |
| Total other expenses | |
| (10,442,000 | ) | |
| 5,000 | | |
| | |
|
| (10,437,000 | ) |
| | |
| | | |
| | | |
| | |
|
| | |
| Net loss | |
| (24,367,000 | ) | |
| (783,000 | ) | |
| | |
|
| (24,966,000 | ) |
| | |
| | | |
| | | |
| | |
|
| | |
| Net loss attributable to non-controlling interest | |
| 1,110,000 | | |
| - | | |
| | |
|
| 1,110,000 | |
| | |
| | | |
| | | |
| | |
|
| | |
| Net loss available to common stockholders | |
$ | (23,257,000 | ) | |
$ | (783,000 | ) | |
| | |
|
$ | (23,856,000 | ) |
| | |
| | | |
| | | |
| | |
|
| | |
| Net loss per common share | |
| | | |
| | | |
| | |
|
| | |
| Basic and diluted | |
$ | (353.87 | ) | |
| | | |
| | |
|
$ | (128.63 | ) |
| | |
| | | |
| | | |
| | |
|
| | |
| Weighted average common and common equivalent shares | |
| | | |
| | | |
| | |
|
| | |
| Basic and diluted | |
| 65,722 | | |
| | | |
| 119,742 | (e) |
|
| 185,464 | |
The accompanying notes are an integral part of these financial statements
Notes
to Unaudited Pro Forma Condensed Combined Financial Statements
Note
1. Basis of Presentation
The
unaudited pro forma condensed combined financial statements (the “Pro Forma Financial Statements”) have been in accordance
with generally accepted accounting principles in the United States and Article 8 of Regulation S-X. The Pro Forma Financial Statements
present the pro forma balance sheet and statements of operations of the Company based upon historical information of the Company and
SMCB after giving effect to the acquisition of SMCB and the adjustments described in these footnotes. The unaudited pro forma condensed
combined balance sheet at March 31, 2025, assumes that the acquisition was completed on March 31, 2025. The unaudited pro forma condensed
combined statements of operations for the three months ended March 31, 2025 and the year ended December 31, 2024 assume that the acquisition
was completed on January 1, 2024.
The
unaudited pro forma condensed combined financial statements are based upon and derived from the historical unaudited financial statements
of the Company as of and for the three-month period ended March 31, 2025, the historical unaudited Statement of Operations of SMCB for
the three-month period ended March 31, 2025, the historical audited Balance Sheet of the SMCB as of March 31, 2025, the historical audited
financial statements of the Company as of and for the year ended December 31, 2024, and the historical unaudited financial statements
of SMCB as of and for the year ended December 31, 2024. Certain financial statement line items in SMCB’s historical financial statements
have been reclassified and condensed to conform to corresponding financial statement line items included in the Company’s historical
financial statement presentation. These reclassifications did not result in any change to the previously reported total assets, net loss
or stockholders’ deficit.
The
Pro Forma Financial Statements have been prepared by management for illustrative purposes only. The unaudited pro forma condensed combined
financial information is not necessarily indicative of the condensed combined financial position or results of operations that would
have been realized had the acquisition occurred as of the dates indicated, nor is it meant to be indicative of any anticipated condensed
combined financial position or future results of operations that the Company will experience after the acquisition. In addition, the
accompanying unaudited pro forma condensed combined statements of operations do not include any pro forma adjustments to reflect operational
efficiencies, expected cost savings or economies of scale that may be achievable or the impact of any non-recurring charges and one-time
transaction related costs that result directly from the transaction. The historical consolidated financial information has been adjusted
to give effect to pro forma events that are: (a) directly attributable to the acquisition, (b) factually supportable, and (c) with respect
to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the condensed combined
results of operations.
Furthermore,
while the Company will be subject to tax at the corporate level subsequent to the Closing Date, the Company will be in a net loss position
that will result in a de minimus deferred tax asset that has been determined to not be more likely than not to be realized. As a result,
the Company will not realize an income tax benefit from the acquisition and no adjustments for the income tax impact of any transaction
accounting adjustments have been reflected herein.
Note
2. Consideration Transferred and Purchase Price Allocation
The
accompanying Pro Forma Financial Statements and related notes were prepared using the acquisition method of accounting, in accordance
with Accounting Standard Codification (“ASC”) 805, Business Combinations (“ASC 805”), with the Company
considered the acquirer of SMCB. In accordance with ASC 805, the assets acquired and the liabilities assumed have been measured at fair
value based on various estimates, with the remaining purchase price recorded as goodwill. Under ASC 805, acquisition-related transaction
costs and acquisition-related restructuring charges are not included as components of consideration transferred but are accounted for
as expenses in the period in which the costs are incurred.
Fair
values of assets and liabilities acquired were determined based on the requirements of ASC 820, Fair Value Measurements and Disclosures.
In accordance with ASC 820, fair value is an exit price and is defined as “the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The fair values of
assets and liabilities acquired represent the Company’s estimates of fair values as of the acquisition date.
Accordingly, management believes the fair values recognized for the assets acquired are based on reasonable estimates and assumptions.
The purchase price for the acquisition
was $4,206,000, comprised of: (a) the issuance of a promissory note in the principal amount of $1,750,000, (b) 119,742 shares
of the Company’s common stock, par value $0.01 per share, valued at $316,000 based on the closing price of the Company’s
common stock of $2.64 per share on May 2, 2025, and (c) the acquisition of debt owed to the Company in the amount of $2,140,000.
| Promissory note | |
$ | 1,750,000 | |
| 119,742 shares of common stock | |
| 316,000 | |
| Acquisition of debt | |
| 2,140,000 | |
| Estimated fair value of consideration transferred | |
$ | 4,206,000 | |
The
Company has performed a preliminary valuation analysis of the fair market value of SMCB assets acquired and liabilities assumed. Using
the total consideration for the acquisition, the Company has estimated the allocations to such assets and liabilities. The following
table summarizes the allocation of the preliminary purchase price as May 2, 2025, the date the acquisition was completed:
| Cash and cash equivalents | |
$ | 593,000 | |
| Accounts receivable, net | |
| 319,000 | |
| Prepaid expenses and other current assets | |
| 377,000 | |
| Property & equipment, net | |
| 11,000 | |
| Other non-current assets | |
| 489,000 | |
| Goodwill | |
| 3,764,000 | |
| Total assets acquired | |
$ | 5,553,000 | |
| | |
| | |
| Accounts payable and accrued expenses | |
$ | (372,000 | ) |
| Other current liabilities | |
| (975,000 | ) |
| Total liabilities assumed | |
| (1,347,000 | ) |
| Fair value of consideration transferred | |
$ | 4,206,000 | |
This
preliminary purchase price allocation has been used to prepare the transaction accounting adjustments in the pro forma balance sheet
and income statement. The fair values of assets and liabilities acquired represent the Company’s estimates of fair values as of
the acquisition date. Management believes that the fair values recognized for the assets and liabilities acquired are based on reasonable
estimates and assumptions. The final purchase price allocation will be determined when the Company has completed the detailed valuations
and necessary calculations. The final allocation is expected to be completed when the Company files its report on Form 10-Q for the quarter
ended September 30, 2025 and could differ materially from the preliminary allocation used in the transaction accounting adjustments.
The final allocation may include: (i) changes in fair values of property and equipment, (ii) changes in allocations to goodwill, and
(iii) other changes to assets and liabilities.
Note
3. Adjustments to Pro Forma Financial Statements
The
unaudited pro forma adjustments included in the Pro Forma Financial Statements are as follows:
Adjustments
to Unaudited Pro Forma Condensed Combined Balance Sheet
| (a) | The
adjustments to accounts payable and accumulated deficit reflects the estimated transaction
expenses of $150,000 that were cash settled, or are expected to be cash settled, subsequent
to March 31, 2025. These costs included fees for legal, accounting, due diligence, tax, valuation
and other various services necessary to complete the transaction. These estimated costs have
been excluded from the pro forma statements of operations because they reflect changes directly
attributable to the acquisition that will not have an ongoing impact on the Company. |
| | |
| (b) | The
adjustment to goodwill reflects the excess of the fair value of the consideration transferred
over the fair value of SMCB’s identifiable assets acquired and liabilities assumed
in the acquisition. The fair value of the consideration transferred over the fair value of
the identifiable net assets acquired is calculated as follows: |
| Fair value of consideration transferred | |
$ | 4,206,000 | |
| Fair value of net assets acquired | |
| 442,000 | |
| Total goodwill adjustment | |
$ | 3,764,000 | |
| (c) | The
adjustment to current portion of notes payable to related parties and notes payable to related
parties, net of current portion represents the issuance of a promissory note to SemiCab,
Inc. in the principal amount of $1,750,000, of which $1,500,000 is due in 12 months and the
remaining $250,000 is due in 18 months. |
| | |
| (d) | The
adjustment to notes receivable, related party, notes payable to related parties, net of current portion and extinguishment of debt reflects the elimination of $1,640,000 of notes
receivable and notes payable between SMCB and the Company. |
| (e) | The
adjustment to par value and additional paid-in capital reflects the issuance of 119,742 shares
of the Company’s common stock, par value $0.01 per share, to SemiCab, Inc. valued at
$316,000 based on the closing price of the Company’s common stock of $2.64 per
share on May 2, 2025. |
| | |
| (f) | The
adjustment to equity shares reflects the elimination of SMCB’s historical equity
balances. |
| (g) | The adjustment to accumulated deficit
reflects the assumption of $2,140,000 of debt owed by SMCB to the Company. |
| | |
| (h) | The adjustments to accounts receivable reflect the elimination
of related party customer advances between SMCB and the Company. |
| | |
| (i) | The adjustment to accounts payable and accrued expenses reflects the elimination of related
party accrued sales between SMCB and the Company. |
| | |
| (j) | The adjustment to note receivable, related party reflects the reversal of prior credit
losses |
Adjustments
to Unaudited Pro Forma Condensed Combined Statements of Operations
| (k) | The
adjustment to revenue and general and administrative expenses reflects the elimination of
royalties in the amount of $183,000 and $655,000, which is a 15% markup of the expenses
recorded in general and administrative expenses during the three months ended March 31,
2025 and the year ended December 31, 2024, respectively, paid by SMCB to the Company under
its intercompany services agreement with the Company. |
| | |
| (l) | The
adjustment to general and administrative expenses reflects the estimated transaction expenses
of $150,000 that were cash settled, or are expected to be cash settled, subsequent to March
31, 2025. These costs included fees for legal, accounting, due diligence, tax, valuation
and other various services necessary to complete the transaction. These estimated costs have
been excluded from the pro forma statements of operations because they reflect changes directly
attributable to the acquisition that will not have an ongoing impact on the Company. |
| | |
| (m) | The
adjustment to general and administrative expenses reflects equity compensation expense of
$20,000 associated with the membership interest granted to Ajesh Kapoor and Vivek Sehgal
under their respective amended and restated employment agreements. |
