Derivative Liability

12 Months Ended

Dec. 31, 2024

Derivative Liability

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.