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Derivative Liability
 6 Months Ended 12 Months Ended
Jun. 30, 2025
Dec. 31, 2024
Derivative Liability

Note 12 – Derivative Liability

 

During the six months ended June 30, 2025, 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.

 

 

ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024 and 2023

 

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

  

Warrant Liability – Series A Warrants  January 17, 2025   December 31, 2024 
Stock price on valuation date  $8.38   $18.00 
Exercise price  $8.38   $34.00 
Number of warrants   1,133,652    279,412 
Remaining term (years)   4.88    4.93 
Annual equity volatility   126.0%   113.0%
Annual volume volatility   377.0%   379.0%
Risk-free interest rate   4.32%   4.29%
Expected stockholder approval date   January 13, 2025    January 14, 2025 
Expected stockholder approval probability   100%   50%

 

The Series B warrant liabilities were remeasured on each exercise date based on the closing price of the Company’s common stock on the date the warrants were exercised.

 

On January 13, 2025, the Company’s shareholders approved the issuance of the Series A and Series B warrants. This approval triggered the adjustment to the exercise price described above. In connection with this approval, the holders of the Series B warrants exercised their warrants in full under the alternative cashless exercise provision, resulting in the issuance of 1,910,975 shares of common stock and no additional proceeds received by the Company. The Series A warrants became exercisable for 1,133,652 shares of common stock at an exercise price of $8.38 per share after the shareholder approval adjustment was finalized on March 17, 2025. In addition, the Company reassessed the classification of the Series A warrants after the shareholder approval adjustment was finalized, concluding that the Series A warrants now met the requirements for equity classification under ASC 480 and ASC 815. The Company adjusted the Series A warrants to fair value upon reclassification and reclassified that value to additional paid-in capital during the six months ended June 30, 2025.

 

The following table provides a roll-forward of the fair value of the derivative liabilities described above during the six months ended June 30, 2025:

  

   Series A Warrants   Series B Warrants   Total Warrant Liabilities 
Balance at December 31, 2024  $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 June 30, 2025  $—   $—   $— 

 

 

ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024 and 2023

 

The following table provides a roll-forward of the number of shares of common stock underlying warrants issued during the six months ended June 30, 2025:

 

   Series A Warrants   Series B Warrants   Other Warrants   Total 
Balance at December 31, 2024   279,412    279,412    4,511    563,335 
Exercises   —    (279,412)   —    (279,412)
Balance at June 30, 2025   279,412    —    4,511    283,923 

 

The Company did not issue any warrants during the three and six months ended June 30, 2024 and did not have any warrants outstanding as of June 30, 2024.

 

  
Previously Reported [Member]    
Derivative Liability  

Note 13 – Derivative Liability

 

During the year ended December 31, 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 each of these warrant liabilities were as follows:

 

Warrant Liability – Series A Warrants  Issuance Date   December 31, 2024 
Stock price on valuation date  $18.00   $18.00 
Exercise price  $34.00   $34.00 
Number of warrants   279,412    279,412 
Remaining term (years)   5.00    4.93 
Annual equity volatility   113.0%   114.0%
Annual volume volatility   377.0%   379.0%
Risk-free interest rate   3.95%   4.29%
Expected stockholder approval date   January 14, 2025    January 14, 2025 
Expected stockholder approval probability   50%   50%

 

 

ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024 and 2023

 

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 warrants   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 following table details the Company’s 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:

 

December 31, 2024  Level 1   Level 2   Level 3 
Liabilities               
Warrant liabilities  $—   $—   $16,603,000 
Total liabilities  $—   $—   $16,603,000 

 

The following table provides a roll-forward of the fair value of the derivative liabilities described above:

 

 

 

  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 

 

 

ALGORHYTHM HOLDINGS, INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024 and 2023

 

The following table provides a roll-forward of the number of shares of common stock underlying warrants issued during the year ended December 31, 2024 and the nine months ended December 31, 2023:

 

    Pre-Funded Warrants    Series A Warrants   Series B Warrants   Other Warrants     Total 
Balance at March 31, 2023     —     —    —     4,511      4,511 
Issuances     —     —    —     —      — 
Exercises     —     —    —     —      — 
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 

 

The Company did not issue any warrants during the nine month transition period ended December 31, 2023 and did not have any warrants outstanding as of December 31, 2023.