What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-19 compared with 2024-08-19 · 213 added, 166 removed, 93 unchanged (80% of the section changed)

26 unchanged sentences

Condition and Results of Operations included in our Transition Report on Form 10-KT, filed with the SEC on April 15, 2024.

this Quarterly Report, unless the context requires otherwise, references to the “Company,” “Singing Machine,”

“we,” “our company” and “us” refer to The Singing Machine Company, Inc., a Delaware corporation,

as well as our wholly owned subsidiaries;

“SMCL” refers to SMC Logistics, Inc., a California corporation, “SMCM”

refers to SMC-Music, Inc., a Florida corporation, “SMH” refers to SMC (HK) Limited, a Hong Kong company, and “MICS

NY” refers to MICS Nomad, LLC, a Delaware limited liability company.

this Quarterly Report, unless the context requires otherwise, references to the “Company,” “Algorhythm,” “we,”

“our company” and “us” refer to Algorhythm Holdings, Inc., a Delaware corporation, as well as our wholly owned

subsidiaries;

SMC Logistics, Inc., a California corporation (“SMCL”), SMC-Music, Inc., a Florida corporation (“SMCM”),

SMC (HK) Limited, a Hong Kong company (“SMH”), The Singing Machine Company, Inc., a Delaware corporation (“Singing

Machine”), MICS Hospitality Holdings, Inc., a Delaware corporation (“MICS Hospitality”), MICS Hospitality Management,

LLC, a Delaware limited liability company (“MICS Hospitality Management”), MICS Nomad, LLC, a Delaware limited liability

company (“MICS NY”) and SemiCab Holdings, LLC, a Nevada limited liability company (“SemiCab”).

objective of this Management’s Discussion and Analysis of Financial Condition and Results of Operation is to allow investors to

view our company from management’s perspective, considering items that would have a material impact on future operations.

Singing Machine Company, Inc., a Delaware corporation (the “Company” or “The Singing Machine”) is a consumer

electronics manufacturer of retail karaoke products.

Based in Fort Lauderdale, Florida, and founded over forty years ago, the Company

is primarily engaged in the development, marketing, and sale of a wide assortment of at-home and in-car consumer karaoke audio equipment,

accessories, musical recordings and products.

The Company’s portfolio is marketed under both proprietary brands and licenses including

Carpool Karaoke and Sesame Street.

The Company’s products are sold in locations worldwide, primarily through mass merchandisers

and warehouse clubs, on-line retailers and to a lesser extent department stores, lifestyle merchants, direct mail catalogs and showrooms,

music and record stores, and specialty stores.

Singing Machine’s operations include its wholly owned subsidiaries, SMC Logistics, Inc., a California corporation (“SMCL”),SMC-Music,

Inc., a Florida corporation (“SMCM”), SMC (HK) Limited, a Hong Kong company (“SMH”), MICS Hospitality Holdings,

Inc., a Delaware corporation (“MICS Hospitality”), MICS Hospitality Management, LLC, a Delaware limited liability company

(“MICS Hospitality Management”) and MICS Nomad, LLC, a Delaware limited liability company (“MICS NY”).

Holdings, Inc.

(f/k/a The Singing machine Company, Inc.) (the “Company”) is a holding company for an AI enabled software

logistics business operated through our SemiCab Holding subsidiary and a home karaoke consumer products company that designs and distributes

karaoke products globally to retailers and ecommerce partners through our Singing Machine subsidiary.

operations include our wholly owned subsidiaries, SMC Logistics, Inc., a California corporation (“SMCL”), SMC-Music, Inc.,

a Florida corporation (“SMCM”), SMC (HK) Limited, a Hong Kong company (“SMH”), MICS Hospitality Holdings, Inc.,

a Delaware corporation (“MICS Hospitality”), MICS Hospitality Management, LLC, a Delaware limited liability company (“MICS

Hospitality Management”), MICS Nomad, LLC, a Delaware limited liability company (“MICS NY”) and SemiCab Holdings, LLC,

a Nevada limited liability company (“SemiCab”).

Machine is primarily engaged in the development, marketing, and sale of consumer karaoke audio equipment, accessories, and musical recordings.

We are a global karaoke and music entertainment company that specializes in the design and production of quality karaoke and music enabled

consumer products for adults and children.

is a cloud-based collaborative transportation platform built to achieve the scalability required to predict and optimize full-truckload

transportation at enterprise-scale.

To orchestrate collaboration across manufacturers, retailers, distributors, and their carriers, SemiCab

uses real-time data from API-based load tendering and pre-built integrations with TMS and ELD partners.

To build fully loaded round trips,

SemiCab uses AI/ML techniques and advanced predictive optimization models.

and Symbol Change

September 5, 2024, our Certificate of Incorporation was amended to effect a change in the name of the Company from “The Singing

Machine Company, Inc.” to “Algorhythm Holdings, Inc.” In addition, effective September 8, 2024, the Company’s

ticker symbol was changed from “MICS” to “RIME.”

in Fiscal Year

1 unchanged sentence

Our results of operations, cash flows,

and all transactions impacting shareholders’ equity presented in this Quarterly Report on Form 10-Q as of June 30, 2024 are for

the three and six month periods ended June 30, 2024 and 2023.

Offering June 2024

and all transactions impacting shareholders’ equity presented in this Quarterly Report on Form 10-Q as of September 30, 2024 are

for the three and nine month periods ended September 30, 2024 and 2023.

June 26, 2024, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with Ascendiant

5 unchanged sentences

Sales Agreement (the “Amendment”) to increase the number of shares to be sold in the ATM Offering to $3,100,000.

three and six months ended June 30, 2024, the Company had not yet sold any shares of its common stock from this ATM Offering.

to the agreement, the Agent is to be paid $30,000 in fees to cover legal and administrative expenses and will receive an amount equal

to 3% of the gross proceeds from each sale of the Company’s share of common stock.

to June 30, 2024 and through August 16, 2024(the last trading day prior to filing), the Company sold 1,657,172 shares of common stock

under the ATM offering, and received net proceeds from the ATM of approximately $1,676,000 after payment of brokerage commissions

and administrative fees to the agent of approximately $51,000.

to the agreement, the Agent was paid $30,000 in fees to cover legal and administrative expenses and will receive an amount equal to 3%

of the gross proceeds from each sale of the Company’s share of common stock.

For the three and nine months ended September 30,

2024, the Company sold 1,673,077 shares of common stock under the ATM offering and received net proceeds of approximately $1,489,000

after payment of legal and accounting fees, brokerage commissions, and administrative fees to the agent of approximately $189,000.

to September 30, 2024 and through November 18, 2024 (the last trading day prior to filing), the Company sold 2,162,423 shares of common

stock under the ATM offering, and received net proceeds of approximately $1,372,000 after payment of brokerage commissions and administrative

fees to the agent of approximately $42,000.

June 11, 2024, the Company and its wholly owned subsidiary SemiCab Holdings, LLC, a Nevada limited liability company (“SemiCab

10 unchanged sentences

to the asset acquisition agreement, the Company and Seller entered into an option agreement (the “Option Agreement”), granting

the Buyer the right to acquire all of the issued and outstanding capital securities of SMCB Solutions Private Limited, a wholly owned

subsidiary of the Seller, in consideration for 320,903 shares of common stock of the Company.

The Option Agreement has not been exercised

through the date of this filing.

November 20, 2023, the Company entered into an agreement to sell $2,000,000 in common stock through a private placement of common stock

(the “Private Placement”).

The Private Placement was completed with two Affiliates, (Stingray Group, Inc.

and Jay Foreman),

both of which were existing shareholders with Board representation.

The Private Placement was completed at $0.91 per share of common

stock, with a total of approximately 2,198,000 shares issued.

Net proceeds from the transaction were approximately $1,900,000, net of

transaction fees of approximately $100,000.

During the six-month period after the closing date, the purchasers may make a written request

for registration under the Securities Act of all or any portion of the shares purchased.

During the six months ended June 30, 2024, Jay

Foreman has made a written request to register his 1,099,000 shares.

the Buyer the right to acquire all of the issued and outstanding capital securities of SMCB Solutions Private Limited (“SMCB”),

a wholly owned subsidiary of the Seller, in consideration for 320,903 shares of common stock of the Company.

The Option Agreement has

not been exercised through the date of this filing.

August 23, 2023, MICS NY entered into an Agreement of Lease (the “Lease Agreement”) with OAC 111 Flatiron, LLC and OAC Adelphi,

2 unchanged sentences

York, New York (the “Premises”).

term of the Lease Agreement is for fifteen (15) years, or on such an earlier date upon which the term shall expire, be canceled or terminated

pursuant to any of the conditions or covenants of the Lease Agreement.

Pursuant to the Lease Agreement, MICS NY is obligated to pay an

initial base rent in the amount of $30,000 beginning August 1, 2024, with scheduled increases over the term, as set forth in the Lease

the three months ended June 30, 2024, the Company abandoned its plans to continue use of the leased space due to failure to receive a

liquor license.

Consequently, the Company exercised its early termination provision of the Lease Agreement which was not accepted by

the Landlord.

While attempting to settle, the Company failed to make the first recurring cash lease payment due on July 31, 2024, and

as a result defaulted on the lease.

Due to the abandonment of the lease, all assets related to the lease were impaired.

Assets including

security deposits, rent deposits and right of use assets of approximately $3,878,000 have been written off during the three months ended

June 30, 2024 and are included as a component of operating expenses in the accompanying condensed consolidated statements of operations.

July 26, 2024, OAC 111 Flatiron, LLC and OAC Adelphi, LLC, filed a civil action in the Supreme Court of the State of New York against

MICS NY and the Company (“the Defendants”) for alleged breach of lease, seeking monetary damages including unpaid rent, future

unpaid rent, and other expenses related to the lease.

the six months ended June 30, 2024, the Company abandoned its plans to continue use of the leased space and exercised its early termination

provision of the Lease Agreement which was not accepted by the Landlord.

Due to the abandonment of the lease, all assets related to the

lease were impaired.

Assets including security deposits, rent deposits and right of use assets of approximately $3,878,000 were written

off during the three months ended June 30, 2024.

July 26, 2024, OAC 111 Flatiron, LLC and OAC Adelphi, LLC (the “Landlord”), filed a civil action in the Supreme Court of

the State of New York against MICS Nomad LLC, a subsidiary of the Company (“MICS NY”), and the Company (“the Defendants”)

for alleged breach of lease, seeking monetary damages including unpaid rent, future unpaid rent, and other expenses related to the lease.

The complaint alleges the Defendants breached the lease in various material respects.

September 25, 2024, the Company entered into a Settlement Agreement for a full release and dismissal of the complaint within 5 business

days of the Company’s payment of $250,000.

Pursuant to the Settlement Agreement, the Company made the first payment of $150,000

was made on September 25, 2024 and a final payment of $100,000 was due and paid on October 25, 2024.

On October 29, 2024 the Landlord

filed a discontinuance with prejudice.

a result of the settlement, during the three months ended September 30, 2024, the Company wrote off the remaining operating lease liability

on the Lease Agreement and recognized a gain on early termination of the operating lease of approximately $3,874,000.

For the nine months

ended September 30, 2024 the Company recognized a loss on early termination of the operating lease of $4,000 which includes the $250,000

termination settlement expense.

The net loss on early termination of the Lease Agreement was recorded as a component of operating expenses

in the accompanying condensed consolidated statements of operations.

October 22, 2024, the Company entered into a Securities Purchase Agreement (the “SPA”) with investors pursuant to which we

sold, in a private placement (the “Private Placement”), secured notes with an aggregate principal amount of $2,352,941 (the

“Notes”), for cash proceeds of $2,000,000, net of original issue discount of $352,941.

As consideration for entering into

the SPA, we issued a total of 2,299,998 shares of common stock of the Company to the investors on October 24, 2024 (See Note 17).

Credit Facility

March 28, 2024, the Company and Oxford Commercial Finance, a Michigan banking corporation, (referred to as “Oxford”) entered

into a Loan Agreement (the “Loan Agreement”) and related Revolving Credit Note (the “Note”) for a $2,000,000

revolving line of credit (the “Oxford Line of Credit”).

On October 17, 2024, the Company terminated the Loan Agreement and

As of the date of termination, the Company had no outstanding amounts owed to Oxford and paid a termination fee of $40,000.

October 18, 2024, the Company amended its Amended By-laws (the “By-law Amendment”), for the purpose of reducing the quorum

required to hold meetings of the stockholders of the Company (the “Quorum Requirement”).

The By-law Amendment reduced the

Quorum Requirement from a majority to thirty-three and one-third percent (33 1/3%) of the voting power of the shares of stock issued

and outstanding and entitled to vote at the meeting.

The By-law Amendment was approved by the Board of Directors of the Company on October

November 1, 2024, the Company entered into a Stock Repurchase Agreement (the “Repurchase Agreement”) with Regalia Ventures

LLC, a Delaware limited liability company (the “Seller”), pursuant to which the Company agreed to repurchase from the Seller

an aggregate of 1,098,901 issued and outstanding shares of common stock, par value $0.01 per share, of the Company (the “Shares”).

Pursuant to the terms of the Repurchase Agreement, the Company has agreed to repurchase from the Seller, and the Seller has agreed to

sell, assign and transfer to the Company, all of the Seller’s right, title and interest in and to the Shares, at a price per Share

equal to the higher of:

(1) the closing price of the common stock on the last trading day immediately preceding the date of the Repurchase

or (2) the highest volume weighted average price (VWAP) of the common stock during a pricing period of ten (10) consecutive

trading days prior to the date of the Repurchase Agreement per share (the “Purchase Price”), and the Company shall issue

to the Seller a promissory note in the principal amount equal to the Purchase Price, substantially in the form attached to the Repurchase

Agreement as Exhibit A (the “Note”), and subject to terms and conditions therein.

shares of common stock to be repurchased were originally issued to the Seller on November 21, 2023, pursuant to a certain stock purchase

agreement, dated November 20, 2023.

As of the date of this filing, the repurchase of the

shares has not yet closed.

of Operations

following table sets forth, for the periods indicated, certain items related to our consolidated statements of income as a percentage

following table sets forth, for the periods indicated, certain items related to our consolidated statements of operations as a percentage

of net sales as follows:

For the Three Months Ended

For the Six Months Ended

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

the Three Months Ended

the Nine Months Ended

Cost of Goods Sold

Operating Expenses

Loss from Operations

Other (Expenses) Income, Net

Loss Before Income Tax Benefit (Provision)

Income Tax Benefit (Provision)

Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023

sales for the three months ended June 30, 2024, decreased to approximately $2,440,000 from approximately $2,625,000 representing a decrease

of approximately $185,000 (7.0 %) as compared to the three months ended June 30, 2023.

The decrease was primarily due to lower overall

sell-through results during the past holiday season, mostly with our largest customer, Walmart, which in turn diminished inventory restocking

requirements during the first six months of the calendar year which is historically off-peak shipping season.

profit for the three months ended June 30, 2024 decreased to approximately $324,000 from approximately $529,000 representing a decrease

of approximately $205,000 (38.8%) as compared to the three months ended June 30, 2023.

Gross margins for the three months ended June

30, 2024 were 13.3% as compared to 20.2% for the three months ended June 30, 2023.

Approximately $260,000 of the decrease in gross profit

was primarily due to increased sales in excess inventory which yielded significantly lower margin than current models sold and was offset

by a decrease in expenses of approximately $57,000 associated with the miscellaneous logistics costs related to the timing of receipt

of new goods.

the three months ended June 30, 2024, total operating expenses increased to approximately $6,478,000, compared to approximately

$2,960,000 during the three months ended June 30, 2023.

This represents an increase in total operating expenses of approximately

$3,518,000 from the three months ended June 30, 2023.

The increase in operating expenses was primarily due to the write-off of

impaired operating lease assets of approximately $3,878,000 related to the hospitality lease (See Hospitality Lease in Recent

Developments).

This increase in operating expenses was offset by a decrease in seasonal bad debt reserves of approximately $156,000,

a decrease in logistics costs of approximately $124,000 associated with the closing of the warehouse operation and outsourcing of

logistics to a third-party logistics company, acceleration of depreciation expense of approximately $130,000 recognized in the prior

year on impaired fixed assets associated with the closing of the warehouse.

Expenses, net

expense consisted of interest expense of approximately $17,000 for the three months ended June 30, 2024, as compared to interest expense

of approximately $29,000 for the three months ended June 30, 2023.

the three months ended June 30, 2024 and 2023 the Company recognized a tax benefit of approximately $52,000 and $0, respectively.

Company is not recognizing any tax provision for the six months ended June 30, 2024 as the Company is not forecasting any taxable income

for the current year and had a loss before income tax benefit in the previous year.

The Company’s income tax expense differs for

the expected tax benefit based on statutory rates primarily due history of losses and forecasts that suggest the Company will not be

able to utilize any deferred tax assets in the future.

Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023

sales for the six months ended June 30, 2024, decreased to approximately $4,866,000 from approximately $6,008,000 representing a decrease

of approximately $1,142,000 (19.0 %) as compared to the six months ended June 30, 2023.

The decrease was primarily due to lower overall

sell-through results during the past holiday season, mostly with our largest customer, Walmart, which in turn diminished inventory restocking

requirements during the first six months of the calendar year which is historically off-peak shipping season.

profit for the six months ended June 30, 2024 decreased to approximately $826,000 from approximately $1,349,000 representing a decrease

of approximately $523,000 (38.8%) as compared to the six months ended June 30, 2023.

Gross margins for the six months ended June 30,

2024 were 17.0%, as compared to 22.5% for the six months ended June 30, 2023.

There was a decrease of approximately $276,000 primarily

due to lower gross margins caused by increased sales mix of excess inventory yielding margins that were less than current models sold.

The remaining decrease in net sales as explained above accounted most of the remaining $267,000 of the decrease in gross profit.

the six months ended June 30, 2024, total operating expenses increased to approximately $9,267,000 compared to approximately $5,927,000

during the six months ended June 30, 2023.

This represents an increase in total operating expenses of approximately $3,340,000 from the

six months ended June 30, 2023.

The increase in operating expenses was primarily due to the write-off of impaired operating lease assets

of approximately $3,878,000 related to the hospitality lease (See Hospitality Lease in Recent Developments).

The increase in operating

expenses was primarily attributable to a seasonal decrease in bad debt reserves of approximately $81,000, acceleration of depreciation

expense of approximately $133,000 recognized in the prior year on impaired fixed assets associated with the closing of the logistics

warehouse, a decrease in stock based compensation expense of approximately $101,000, reduced costs in selling expense of approximately

$81,000 due to significantly lower inbound freight costs related to the reduced volume of product returns and a decrease in travel and

entertainment of approximately $81,000.

Income (Loss) from Operations

Other (Expenses) Income,

Income (Loss) Before Income

Tax Provision

Income Tax Provision

Net Income (Loss)

Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

sales for the three months ended September 30, 2024, decreased to approximately $10,622,000 from approximately $15,931,000 representing

a decrease of approximately $5,309,000 as compared to the three months ended September 30, 2023.

The decrease was primarily due to lower

overall sell-through results during the prior year holiday season, mostly with our largest customer, Walmart, which in turn reduced their

forecast for the upcoming holiday season resulting in decreased stock purchases.

profit for the three months ended September 30, 2024 decreased to approximately $2,375,000 from approximately $3,734,000 representing

a decrease of approximately $1,359,000 as compared to the three months ended September 30, 2023.

The decrease in gross profit was primarily

due to the decrease in net sales as described above.

the three months ended September 30, 2024, total operating expenses decreased to approximately $1,118,000, compared to approximately

$3,628,000 during the three months ended September 30, 2023.

This represents a decrease in total operating expenses of approximately

$2,510,000 from the three months ended September 30, 2023.

The Company wrote off the remaining operating lease liability on the hospitality

Lease Agreement due to a termination Settlement Agreement and recognized a gain on early termination of the operating lease of approximately

$3,874,000 as the related right of use asset had already been written off as impaired in the previous quarter.

Selling expenses decreased

by approximately $516,000 of variable and discretionary selling expenses commensurate with the decrease in net sales as described above.

These decreases in operating expenses were offset by increases in stock-based consulting expenses of approximately $426,000 and increased

third-party logistics costs of approximately $213,000 associated with the closing of the Company’s logistics warehouse in the prior

In addition, there was an increase in operating expenses of approximately $816,000 related to the asset acquisition agreement of

Expenses (Income)

expenses consisted of interest expense of approximately $283,000 for the three months ended September 30, 2024, as compared to interest

expense of approximately $53,000 for the three months ended September 30, 2023.

The increase in interest expense of approximately $230,000

was primarily due to interest incurred on debt from the recently acquired asset purchase of SemiCab.

There was a gain on the disposal

of warehouse equipment of approximately $44,000 associated with the closing of the logistics facility in California during the three

months ended September 30, 2023.

the three months ended September 30, 2024 and 2023 the Company did not recognize any income tax provision.

The Company is not recognizing

any tax provision for the three months ended September 30, 2024 as the Company is not forecasting any taxable income for the current

year and had a loss before income tax benefit in the previous year.

The Company’s income tax expense differs for the expected tax

benefit based on statutory rates primarily due history of losses and forecasts that suggest the Company will not be able to utilize any

deferred tax assets in the future.

Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

sales for the nine months ended September 30, 2024, decreased to approximately $15,488,000 from approximately $21,939,000 representing

a decrease of approximately $6,451,000 as compared to the nine months ended September 30, 2023.

The decrease was primarily due to lower

overall sell-through results during the prior year holiday season, mostly with our largest customer, Walmart, which in turn reduced their

forecast for the upcoming holiday season resulting in decreased stock purchases.

profit for the nine months ended September 30, 2024 decreased to approximately $3,201,000 from approximately $5,357,000 representing

a decrease of approximately $2,156,000 as compared to the nine months ended September 30, 2023.

The decrease in gross profit was primarily

due to the decrease in net sales as described above.

Gross margins for the nine months ended September 30, 2024 were 20.7%, as compared

to 24.4% for the nine months ended September 30, 2023.

The primary reason for the decrease in gross profit margin was due to a product

mix of excess inventory that was sold at margins significantly lower than current active products.

the nine months ended September 30, 2024, total operating expenses increased to approximately $10,386,000 compared to approximately $9,829,000

during the nine months ended September 30, 2023.

This represents an increase in total operating expenses of approximately $557,000 for

the nine months ended September 30, 2023.

The increase in total operating expenses was primarily due to an increase in stock-based consulting

expenses of approximately $426,000 and an increase in operating expenses of approximately $816,000 related to the asset acquisition agreement

These increases were offset by a decrease in variable and discretionary selling expenses of approximately $596,000 commensurate

with the decrease in net sales as described above.

(Expenses) Income, net

expense consisted of interest expense of approximately $45,000 for the six months ended June 30, 2024 as compared to other income, net

of approximately $635,000.

During the six months ended June 30, 2023, there was a one-time refund of approximately $704,000 from the

Employee Retention Credit program offset by interest expense of approximately $69,000 which accounted for the increase in other income,

the six months ended June 30, 2024, the Company did not recognize any income tax provision as the Company is not forecasting any taxable

income for the current year.

The Company’s income tax provision for the six months ended June 30, 2023, was approximately $1,502,000

as the Company recognized a full valuation allowance on all of its deferred tax assets based on the recent history of losses and forecasts

that suggested the Company would not be able to utilize the deferred tax assets in the future.

The Company’s income tax expense

differs for the expected tax benefit/expense based on statutory rates primarily due to full valuation allowance for all of its subsidiaries

for the six months ended June 30, 2023.

expenses, net increased to approximately $328,000 for the nine months ended September 30, 2024 as compared to other income, net of approximately

was interest expense of approximately $328,000 for the nine months ended September 30, 2024 as compared to interest expense of approximately

The increase in interest expense of approximately $206,000 was primarily due to interest incurred on debt from the recently

acquired asset purchase of SemiCab.

During the nine months ended September 30, 2023, there was a refund of approximately $704,000 from

the Employee Retention Credit program and a gain on the disposal of warehouse equipment of approximately $44,000 associated with the

closing of the logistics facility in California.

the nine months ended September 30, 2024, the Company did not recognize any income tax provision as the Company is not forecasting any

taxable income for the current year.

The Company’s income tax provision for the nine months ended September 30, 2023, was approximately

$1,502,000 as the Company recognized a full valuation allowance on all of its deferred tax assets based on the recent history of losses

and forecasts that suggested the Company would not be able to utilize the deferred tax assets in the future.

The Company’s income

tax expense differs for the expected tax benefit/expense based on statutory rates primarily due to full valuation allowance for all of

its subsidiaries for the nine months ended September 30, 2023.

and Capital Resources

Company incurred a net loss of approximately $8,486,000 for the six-month period ended June 30, 2024, and has a history of recurring

June 30, 2024, we had cash on hand of approximately $1,245,000 as compared to approximately $6,703,000 on December 31, 2023.

Company incurred a net loss of approximately $7,247,000 for the nine-month period ended September 30, 2024, and has a history of recurring

September 30, 2024, we had cash on hand of approximately $621,000 as compared to approximately $6,703,000 on December 31, 2023.

in cash on hand of approximately $6,082,000 from December 31, 2023, was primarily due to approximately $7,069,000 used in operations.

of which approximately $4,711,000 was used to seasonally pay down accounts payable and accrued expenses.

There were seasonal reductions

in customer deposits and refunds to customers of approximately $1,221,000 and a reduction of approximately $1,217,000 in reserves for

sales returns as customers seasonally returned defective and overstock goods from the past holiday season during the six months ended

June 30, 2024.

These uses of cash for operating activities were offset by a seasonal reduction of approximately $5,000,000 in accounts

receivable of which a significant amount of the reduction was offset by customers netting credit amounts due to them from returns and

co-op incentive programs against open invoices.

As of June 30, 2024, our working capital was approximately $2,688,000.

June 30, 2023, we had cash on hand of approximately $1,890,000 as compared to $2,795,000 as of December 31, 2022.

The decrease in cash

on hand of approximately $905,000 was primarily due to approximately $614,000 used in operating activities primarily due to off-peak

seasonal settlement of accounts receivable offset by seasonal increases in accounts payable, accrued expenses related to seasonal accruals

for estimated returned goods, co-op incentive program expenses and customer refunds, approximately $137,000 used investing activities

for the purchase of molds and tooling and approximately $154,000 used in financing activities.

While the Company received proceeds from

the exercise of common stock warrants and issuance of common stock (net of offering costs) of approximately $1,640,000, this increase

in financing activities was offset by repayment of revolving credit lines of credit and other debt of approximately $1,794,000 during

the six months ended June 30, 2024.

We advanced approximately $776,000 to SMCB for prepaid services under a service agreement (See Note 5).

There was a decrease in refunds

due to customers of approximately $1,968,000 which included payment of approximately $768,000 to one major customer for refunds due for

overstock returned by the customer in the prior year.

There was a seasonal increase in reserves for sales returns of approximately $1,180,000.

These uses of cash were offset by proceeds of approximately $1,489,000 for the sale of its common stock and a decrease in trade and related

party accounts receivable of approximately $3,158,000.

As of September 30, 2024, we had deficit working capital of approximately $2,082,000.

September 30, 2023, we had cash on hand of approximately $3,213,000 as compared to $2,795,000 as of December 31, 2022.

in cash on hand of approximately $418,000 was primarily due to approximately $760,000 provided by operating activities primarily due

to peak seasonal increases of accounts payable of approximately $10,442,000 primarily due to factory vendors offset by seasonal

increases in accounts receivable of approximately $3,982,000, inventories or approximately $3,424,000 accrued expenses related to

seasonal accruals for estimated returned goods and co-op incentive program expenses, approximately $1,132,000.

Net cash used

investing activities for the purchase of molds and tooling was approximately $163,000.

Net cash used in financing activities was

approximately $234,000.

While the Company received proceeds from the exercise of common stock warrants and issuance of common stock

(net of offering costs) of approximately $1,640,000, this increase in financing activities was offset by repayment of revolving

credit lines of credit and other debt of approximately $1,874,000 during the nine months ended September 30, 2023.

previously reported on Form 8-K filed on August 30, 2024, on August 26, 2024, the Company received a notice from The Nasdaq Stock Market

LLC (“NASDAQ”) indicating that its stockholders’ equity as reported in its Quarterly Report on Form 10-Q for the quarterly

period ended June 30, 2024 did not meet the minimum of $2,500,000 in stockholders’ equity required by NASDAQ Listing Rule 5550(b)(1)

(the “Equity Rule”) for continued listing, or the alternatives of market value of listed securities or net income from continuing

Pursuant to the Equity Rule, the Company submitted a plan to regain compliance with the Equity Rule.

November 13, 2024, the Company filed a Form 8-K stating that it believed it regained compliance with the Equity Rule.

As disclosed herein,

the Company reported stockholders’ equity of approximately $2.7 million.

has advised the Company that it will continue to monitor the Company’s ongoing compliance with the stockholders’ equity requirement

and, if at the time of its next periodic report the Company does not evidence compliance, that it may be subject to delisting.

on cash flow projections from operating and financing activities and the existing balance of cash, management is of the opinion that

29 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis