What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-04-15 compared with 2023-07-14 · 451 added, 341 removed, 6 unchanged (99% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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.

following discussion summarizes the significant factors affecting our results of operations and financial condition as of and during

the years ended March 31, 2023 and 2022 and should be read in conjunction with our consolidated financial statements and related notes

included elsewhere in this report.

This discussion contains forward-looking statements based upon current plans, expectations and beliefs

that involve risks and uncertainties.

Our actual results and the timing of certain events could differ materially from those anticipated

in or implied by these forward-looking statements as a result of several factors, including those discussed in the section captioned

“Risk Factors” included under Part I, Item 1A and elsewhere in this Annual Report.

See also the section captioned “Disclosure

on Forward-Looking Statements” in this report.

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

We believe we are a leading 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.

Our products are among the most widely available karaoke products in the

Our mission is to “create joy through music.” In order to deliver on this mission, we are focused on the following

multi-prong approach:

the short-term, improve profitability by optimizing operations and continue to expand gross margins;

the mid-to-long-term, continue to grow our global distribution and expand into new product categories that take advantage of our

vast distribution relationships and sourcing abilities.

of Operations for the Fiscal Year Ended March 31, 2023 Compared With Fiscal Year Ended March 31, 2022

following table sets forth, for the periods indicated, certain income and expense items expressed as a percentage of our total revenues:

the Fiscal Years Ended

Cost of Sales

Operating Expenses

Operating (Loss) Income

Other Income, Net

(Loss) Income Before Income Tax Provision

Income Tax Provision

Net (Loss) Income

sales for the year ended March 31, 2023 (“Fiscal 2023”) were approximately $39.3 million.

This represents a decrease of approximately

$8.2 million from the approximately $47.5 million in the fiscal year ended March 31, 2022 (“Fiscal 2022”).

We experienced

a decrease in net sales to four of our five major customers in Fiscal 2023 compared to Fiscal 2022.

The decrease in net sales was largely

due to two main factors:

(1) our major customers began the holiday season with excess inventory that was held over from the previous

year due to late delivery of shipments caused by significant supply chain issues experienced globally during the calendar year 2022;

and (2) the news of economic recession, inflation, and interest rate hikes dampened customers’ expectations for the holiday season,

which resulted in our customers taking a very risk-adverse approach to buying and carrying inventory for the 2022 holiday season.

of our major customers either did not take some of the inventory they had committed to earlier in the year or required significant co-op

promotion incentives on goods sold to assist in holiday inventory sell-through.

Co-op promotion incentives for the fiscal year ended

March 31, 2023 increased to approximately $2.3 million, or 6.0% of net sales, as compared to approximately $1.7 million, or 3.6% of net

sales, for the fiscal year ended March 31, 2022.

profit for Fiscal 2023 was approximately $9.2 million, or 23.4% of total revenues, compared to approximately $10.8 million, or 22.8%

of sales for Fiscal 2022, a decrease of approximately $1.6 million.

The decrease in net sales accounted for approximately $1.9 million

of the decrease, offset by an increase in gross profit margin of approximately $0.3 million.

profit margin for Fiscal 2023 was 23.4%, compared to 22.8% for Fiscal 2022, an increase of 0.6%.

There were increases in gross margin

of approximately $1.7 million, or 5.1%, primarily due to increased pricing and lower landed product costs from significantly decreased

costs of shipping containers compared to the previous year.

These increases in gross profit margin were offset by co-op promotion incentives

that accounted for approximately $0.6 million, or 2.3%, of the gross margin decrease and an increase in inventory reserves contributing

to approximately $0.8 million, or 2.2% of the gross margin decrease.

the fiscal year ended March 31, 2023, total operating expenses increased to approximately $12.9 million compared to approximately $10.7

million during the fiscal year ended March 31, 2022.

This represents an increase in total operating expenses of approximately $2.2 million.

There was a decrease in selling expenses of approximately $0.1 million primarily due to the decrease in sales, offset by an increase

of approximately $2.3 million in general and administrative expenses.

and administrative expenses increased to approximately $9.2 million during the fiscal year ended March 31, 2023, compared to approximately

$6.9 million during the fiscal year ended March 31, 2022, an increase of approximately $2.3 million.

There was an increase in legal,

professional, investor relations and stock transfer costs of approximately $0.9 million primarily related to the Nasdaq up-listing, change

in control issues, regulatory filings, Delaware franchise fees and arbitration settlement.

in the amount of $30,000.

There was an increase

in compensation of approximately $0.5 million, primarily due to compensation for new members of the board of directors, and officers’

and employees’ incentive compensation, new hires as well as merit increases.

There was compensation expense of $0.4 million related

to a change of control and employment continuation agreement with the Chief Financial Officer.

There was an increase in travel expenses

of approximately $0.3 million, which includes participation in trade shows which we had not attended since the beginning of COVID-19.

There were inflationary expenses increases of approximately $0.1 million in our California warehouse operations with the remaining increase

due to other expenses that have increased due to inflation.

Income (Expenses)

income, net decreased by approximately $0.1 million, to approximately $0.1 million for the fiscal year ended March 31, 2023, compared

to approximately $0.2 million for the fiscal year ended March 31, 2022.

During the fiscal year ended March 31, 2023, there was a refund

of approximately $0.7 million, net of expenses, from the Employee Retention Credit Program.

This increase in other income was offset

by fees of approximately $0.2 million for exiting the intercreditor revolving credit facility with Crestmark Bank (“Crestmark”)

and Iron Horse Credit (“IHC”) (See Note 6 – Financing) that was recorded as a loss from extinguishment of debt and

interest expense of approximately $0.4 million.

During the fiscal year ended March 31, 2022, there was a one-time gain from the forgiveness

of the Payroll Protection Plan loan of approximately $0.4 million and a gain from the settlement of accounts payable with one of our

factories of $0.3 million for a previous year’s damaged goods incident.

These increases in other income were offset by interest

expense of approximately $0.5 million during the fiscal year ended March 31, 2022.

Income Before Income Tax (Provision)

had a net loss before income tax provision of approximately $3.6 million in Fiscal 2023, compared to income before income tax provision

of approximately $0.3 million in Fiscal 2022.

The increase was primarily due to the increase in operating expenses of approximately $2.2

million and a decrease in gross profit of approximately $1.6 million, as discussed above.

Tax Provision

management judgment is required in developing our provision for income taxes, including the determination of foreign tax

liabilities, deferred tax assets and liabilities and valuation allowances that are against deferred tax assets.

Management evaluates

its ability to realize its deferred tax assets on a quarterly basis and adjusts its valuation allowance when it believes that it is

not likely to be realized.

As of March 31, 2023, management determined that a full valuation allowance was required.

2023 and 2022, we had net deferred tax assets of approximately $0.0 million and $0.9 million, respectively.

The deferred tax assets

on March 31, 2023 and 2022 were net of a valuation allowance of approximately $2.0 million and approximately $0.1 million,

respectively.

Fiscal 2023, we recognized an income tax provision of approximately $1.0 million, compared to an income tax provision of approximately

$0.1 million in Fiscal 2022.

Our effective tax rate for the fiscal year ended March 31, 2023 was approximately 28.6% as compared to

19.9% for Fiscal 2022.

operate within multiple taxing jurisdictions and are subject to audit in those jurisdictions.

Because of the complex issues involved,

any claims can require an extended period to resolve.

In management’s opinion, adequate provisions for income taxes have been made.

(Loss) Income

a result of the foregoing, we had a net loss of approximately $4.6 million and net income of approximately $0.2 million for Fiscal 2023

and Fiscal 2022, respectively.

And Capital Resources

March 31, 2023, we had cash on hand of approximately $2.9 million as compared to cash on hand of approximately $2.3 million on March

The increase of cash on hand of approximately $0.6 million was primarily due to approximately $1.2 million provided by financing

activities and offset by approximately $0.6 million in net cash used in operating and investing activities.

As of March 31, 2023, our

working capital was approximately $9.1 million.

the next twelve-month period, we plan on financing our working capital needs primarily from:

Vendor financing – All our key vendors in China have agreed to manufacture on our behalf without advanced payments and have extended

payment terms to us.

The terms with the factories are sufficient to cover the factory direct import sales which are expected to account

for approximately 50% of the total revenues in the fiscal year ending March 31, 2024;

Credit Facility - We currently have a three-year revolving Credit Facility with Fifth Third Bank for a $15.0 million facility

(decreasing to $7.5 million in off-peak season) on eligible accounts receivable and inventory which terminates on October 14, 2025.

As of the date of the filing of this Annual Report, there was approximately $1.8 million available to borrow on the revolving Credit

of March 31, 2023, we were in default under the Credit Agreement due to non-compliance with the fixed charge coverage ratio covenant

On May 19, 2023, we executed a Waiver and First Amendment agreement which provides for a waiver of previous defaults and

new covenants that are required.

We must comply monthly with minimum liquidity (defined as excess loan availability plus cash on hand)

of $2.5 million between February and July and $4.0 million between September and June.

We must also maintain pre-defined minimum operating

cash flows between February and August 2023, until we achieve a fixed charge ratio of 1.15 :

1.0 beginning in September 2023 and throughout

the remaining term of the Credit Agreement.

As of the date of filing this Annual Report, we are in compliance with the amended covenants

and there is no outstanding balance on the Credit Facility.

believe that our cash on hand (including proceeds from the ATM Offering), working capital (net of cash), cash expected to be generated

from our operating forecast, along with the availability of cash from our Credit Facility, will be adequate to meet our liquidity requirements

for at least twelve months from the filing of this Annual Report.

While the Company is optimistic that it will be successful in these

efforts to achieve our plan, there can be no assurances that we will be successful in doing so.

As such, the Company has a continued

support letter from its parent company, Ault Alliance, through July 14, 2024.

used in operating activities in Fiscal 2023 was approximately $0.3 million.

There was a decrease in inventory of approximately $4.0 million,

of which approximately $3.3 million was due to the sale of new products purchased for one major customer that were in-transit at the

end of last fiscal year.

This was offset by a decrease in accounts payable of approximately $3.5 million due to a decrease in product

purchases as we were able to sell prior year excess inventory from later than usual shipments due to global logistics issues.

used in operating activities in Fiscal 2022 was approximately $2.0 million.

There was an increase in inventory of approximately $8.4

million, of which approximately $3.7 million was additional inventory due to products that were delivered too late for seasonal shipments

as a result of global logistics difficulties, approximately $3.3 million was new products purchased for one major customer that were

in-transit with the remaining increase primarily due to CPK inventory to be re-launched during the upcoming fiscal year.

increase in accounts receivable of approximately $0.6 million due to later than usual shipments due to global logistics issues.

decreases in cash used in operations were offset by an increase in amounts due from banks of approximately $4.5 million due to cash required

to pay vendors for the additional inventory and an increase in accounts payable of approximately $3.2 million primarily due to new seasonal

goods in-transit.

used in investing activities for Fiscal 2023 and Fiscal 2022 was approximately $0.2 million and $0.1 million, respectively, primarily

for the purchase of molds and tooling for new karaoke models.

cash provided by financing activities for Fiscal 2023 was approximately $1.2 million, compared to cash provided by financing activities

of approximately $4.0 million for Fiscal 2022.

In May 2022, we received net proceeds of approximately $3.4 million from the public offering

we executed in conjunction with our up-listing to Nasdaq.

In addition, during Fiscal 2023, we received proceeds of approximately $1.2

million from the exercise of pre-funded and common stock warrants.

All proceeds were used for working capital.

In October 2022, we exited

our financing facility with Crestmark and IHC and entered into a new financing arrangement with Fifth Third Bank.

We incurred an exit

fee of approximately $0.2 million for early termination of the financing facility with Crestmark and IHC.

We used net proceeds of approximately

$3.1 million from the new financing agreement to pay the subordinated debt to a former related party of approximately $0.3 million, closing

costs of approximately $0.3 million, with the remaining $2.5 million used to settle amounts due on the prior financing with IHC.

cash provided by financing activities for Fiscal 2022 was approximately $4.0 million.

We received loan proceeds from our inventory line

of credit of approximately $2.4 million.

In August 2021, we received net proceeds of approximately $1.8 million from the execution of

the securities purchase agreement and Redemption Agreement as discussed below.

These financing activities were offset by a payment of

approximately $0.2 million on the subordinated related party debt, with the remaining offset primarily due to payments made on scheduled

installments on installment notes and finance leases.

August 2021, we entered into a securities purchase agreement (the “Purchase Agreement”) with large institutional investors

and a strategic investor for private placement of (i) 550,000 shares of our common stock together with common warrants to purchase up

to 550,000 shares of common stock for an exercise price of $10.50 per share, and (ii) 561,111 pre-funded warrants (“Pre-Funded

Warrants”) with each Pre-Funded Warrant exercisable for one share of common stock at an exercise price of $0.01 per share, together

with Common Warrants to purchase up to 561,111 shares of common stock at an exercise price of $10.50 per share (the “Private Placement”).

At the closing of the Private Placement, we received approximately $9.8 million, of which approximately $7.2 million was used to repurchase

shares of our common stock pursuant to that certain Redemption Agreement discussed below.

We received an increase in working capital

of approximately $1.8 million after settlement of expenses associated with closing of these transactions.

August 2021, we entered into the Redemption Agreement with koncepts and Treasure Green, pursuant to which we acquired the 654,105 Redeemed

The closing of the transactions set forth in the Redemption Agreement took place on August 10, 2021, at which time the Redeemed

Shares were assigned and transferred back to us in consideration of a payment of approximately $7.2 million to koncepts and Treasure

The Redeemed Shares were retired and returned as unissued authorized capital.

the fiscal year ended March 31, 2022, we secured additional vendor invoice credits of approximately $0.2 million from vendors relating

to the same damaged goods incident.

sell most of our products in U.S.

dollars with some sales to certain Canadian customers in Canadian Dollars and pay for all of our manufacturing

costs in either U.S.

or Hong Kong dollars.

We are subject to risks involved in the exchange rate between the Canadian and US dollar,

however, even though the exchange rate has fluctuated between $1.29 to $1.35 CAD to the U.S.

Dollar during peak selling and collection

season in Fiscal 2023 sales volume sold in Canadian dollars was not significant and the associated exchange rates did not have a material

impact on our financial results.

Operating expenses of the Macau office are paid in either Hong Kong dollars or Macau Pataca (MOP).

exchange rate of the Hong Kong dollar to the U.S.

dollar has been relatively stable at approximately HK $7.75 to U.S.

$1.00 since 1983

and, accordingly, has not represented a currency exchange risk to the U.S.

The exchange rate of the MOP to the U.S.

approximately MOP $8.00 to U.S.

While exchange rates have been stable for several years, we cannot assure you that the exchange

rate between the United States, Macau, Hong Kong and Canadian currencies will continue to be stable and exchange rate fluctuations may

have a material effect on our business, financial condition or results of operations.

and Quarterly Results

Historically,

our operations have been seasonal, with the highest net sales occurring in the second and third quarters (reflecting increased orders

for equipment and music merchandise during the Christmas selling months) and to a lesser extent the first and fourth quarters of the

Sales in our fiscal second and third quarter, combined, accounted for approximately 62% and 81% of net sales in Fiscal 2023

and Fiscal 2022, respectively.

results of operations may also fluctuate from quarter to quarter as a result of the amount and timing of orders placed and shipped to

We may experience quarter to quarter fluctuations in product landed cost as the cost of shipping containers, drayage port

delay charges and other logistics related costs increase as peak shipping season arrives.

The fulfillment of orders can therefore significantly

affect results of operations on a quarter-to-quarter basis.

2022 and continuing into 2023, the United States has experienced a rapid increase in inflation levels of approximately 6.5% year-over

year in 2022 and approximately 4.0% year-over-year in 2023.

Such heightened inflationary levels may negatively impact consumer disposable

income and discretionary spending and, in turn, reduce consumer demand for our products and increase our costs and could significantly

affect results of operations on a quarter-to-quarter basis.

Accounting Policies and Estimates

prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.

As such, management is required to make certain estimates, judgments and assumptions that it believes are reasonable based on the information

These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements

and the reported amounts of revenues and expenses for the periods presented.

The significant accounting policies which management believes

are the most critical to aid in fully understanding and evaluating our reported financial results included accounts receivable allowance

for doubtful accounts, reserves on inventory, revenue recognition and reserve for sales returns and allowances and income taxes.

Receivable and Collectibility

accounts receivable consist of amounts due from customers in the ordinary course of business.

Accounts receivable are carried at cost,

net of allowances for uncollectible amounts.

Provisions for losses are charged to operations in amounts sufficient to maintain an allowance

for losses at a level considered adequate to cover probable losses inherent in our accounts receivable.

Our allowance for doubtful accounts

is based on management’s estimates of the creditworthiness of our customers, current economic conditions and historical information,

and, in the opinion of management, is believed to be an amount sufficient to respond to normal business conditions.

Management sets 100%

reserves for customers in bankruptcy and other reserves based upon historical collection experience and future expectations.

Should business

conditions deteriorate or any major customer default on its obligations to us, this allowance may need to be significantly increased,

which would have a negative impact on operations.

We are subject to chargebacks from customers for co-op promotion incentives, defective

returns, return freight and handling charges that are deducted from open invoices, charged against revenue, and reduce collectability

of open invoices.

On Inventories

establish a reserve on inventory based on the expected net realizable value of inventory on an item-by-item basis when it is apparent

that the expected realizable value of an inventory item falls below its original cost.

A charge to cost of sales results when the estimated

net realizable value of specific inventory items declines below cost.

Management regularly reviews our investment in inventories for

such declines in value due to excess supply on-hand, slow-moving product and end-of-life product.

On March 31, 2023 and 2022, we had

inventory reserves of approximately $0.9 million and $0.4 million, respectively.

Recognition And Reserve For Sales Returns and Allowances

recognize revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 606,

“Revenue from Contracts with Customers”.

All revenue is generated from contracts with customers.

We recognize revenue when

control of the goods sold is transferred to the customer, in an amount, referred to as the transaction price, that reflects the consideration

to which we are expected to be entitled in exchange for those goods.

We determine revenue recognition utilizing the following five steps:

(1) identification of the contract with a customer;

(2) identification of the performance obligations in the contract (promised goods

or services that are distinct);

(3) determination of the transaction price;

(4) allocation of the transaction price to the performance

and (5) recognition of revenue when, or as, we transfer control of the product or service for each performance obligation.

contracts with customers consist of one performance obligation (the sale of our products).

Our contracts have no financing elements,

payment terms are less than 120 days and have no further contract asset or liability obligations once control of goods is transferred

to the customer.

Revenue is recorded in the amount of consideration we expect to receive for the sale of these goods.

incurred in fulfilling contracts with customers include administrative costs associated with the procurement of goods are included in

general and administrative expenses, in-bound freight costs are included in the cost of goods sold and accrued sales representative commissions

are included in selling expenses in the accompanying consolidated statements of operations as our underlying customer agreements are

less than one year.

selectively participate in a retailer’s co-op promotion incentives to maximize sales of our products on the retail floor or to

assist in developing consumer awareness of new product launches, by providing marketing fund allowances to our customers.

As these co-op

promotion incentives are not a distinct good or service and we cannot reasonably estimate the fair value of the benefit we receive from

these arrangements, the cost of these allowances at the time they are offered to the customers are recorded as a reduction to net sales.

For the fiscal years ended March 31, 2023 and 2022, co-op promotion incentives were approximately $2.3 million and $1.7 million, respectively.

disaggregate revenues by product line and major geographic region as most of its revenue is generated by the sales of karaoke hardware

and we have no other material business segments (See NOTE 14 – SEGMENT INFORMATION).

we generally do not contractually provide for overstock returns, we do provide for variable consideration contingent upon the occurrence

of uncertain future events.

Variable consideration is estimated at the expected value or at the most likely amount depending on the type

of consideration.

Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of

cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

variable consideration under our return allowance programs for goods returned from the customer for various reasons, whereby a sales

return reserve is recorded based on historic return amounts, specific events as identified and management estimates.

the fiscal years ended March 31, 2023 and 2022, we received sales returns of approximately $5.0 million and $3.6 million, respectively.

The return of products is due to a variety of reasons including defective units, customers’ overstock and buyers’ remorse.

The primary reason for the increase of approximately $1.4 million in returns was an increase in overstock returns from one major customer.

reserves for sales returns were approximately $0.9 million and $1.0 million as of March 31, 2023 and 2022, respectively (See NOTE 18

– RESERVE FOR SALES RETURNS).

operate within multiple taxing jurisdictions and are subject to audit in those jurisdictions.

Because of the complex issues involved,

any claims can require an extended period to resolve.

In management’s opinion, adequate provisions for potential income taxes in

the jurisdictions have been made.

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.

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.

make other estimates in the ordinary course of business relating to sales returns and allowances, warranty reserves, and reserves for

promotional incentives.

Historically, past changes to these estimates have not had a material impact on our financial condition.

circumstances could change which may alter future expectations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this report contain

forward-looking statements that involve risks and uncertainties.

All forward-looking statements included in this report are based on

information available to us on the date hereof, and, except as required by law, we assume no obligation to update any such forward-looking

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a number

of factors, including those set forth herein under Item 1A.

Risk Factors and elsewhere in this report.

See also “Special

Note Regarding Forward-Looking Statements” beginning on page 1 of this report.

The following should be read in conjunction

with our consolidated financial statements beginning on page F-1 of this report.

are an AI technology and consumer electronics holding company with two primary business units – SemiCab and Singing Machine.

is an AI-enabled software logistics business operated through our subsidiary, SemiCab Holdings, LLC.

Singing Machine is a home karaoke

consumer products business that designs and distributes karaoke products globally to retailers and ecommerce partners through our subsidiary,

The Singing Machine Company, Inc.

is a cloud-based Collaborative Transportation Platform built to achieve the scalability required to predict and optimize loads and the

use of trucks.

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.

2020, SemiCab has enabled major retailers, brands and transportation providers to address their transportation needs.

Orchestrated Collaboration™ AI model has proven to increase transportation capacity, improve asset utilization, reduce empty miles,

lower logistics costs, and provide visibility into the entire transportation network.

Models show that the technology has the capability

of reducing costs through optimization.

Additionally, SemiCab’s technology has the potential to play a key role in the improved

sustainability model.

Based on its proven ability to improve truck utilization rates, this could result in a dramatic reduction in the

carbon footprint of the industry.

The optimization of existing truck utilization can add trucking capacity without adding more trucks,

drivers or driven miles which addresses common problems plaguing the industry like severe driver shortage and road congestion.

optimization could also reduce carbon emissions attributable to road freight.

Singing Machine, we engage in the development, marketing, and sale of consumer karaoke audio equipment, accessories, and musical recordings.

We are a leading 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.

Our products are among the most widely available karaoke products internationally.

mission is to “create joy through music.” To deliver on this mission, we are focused on a multi-prong approach.

In the short-term,

we seek to improve profitability by optimizing operations and continue to expand gross margins.

In the mid-to-long-term, we seek to continue

to expand our business into new verticals including automotive and connected-TV devices and grow our global distribution for our consumer

karaoke products.

Corporate Events

in Fiscal Year

2023, our board of directors approved a change in our fiscal year end from March 31 to December 31.

In accordance with SEC regulations,

our consolidated financial statements are comprised of our balance sheets at December 31, 2024 and 2023 and our statements of operations,

stockholders’ deficit and cash flows for the year ended December 31, 2024 and the nine-month period ended December 31, 2023.

a result, this Management’s Discussion and Analysis of Financial Condition and Results of Operations is comparing our results

of operations for the full year ended December 31, 2024 with our results of operations for only the nine-month period ended December

and Symbol Change

September 5, 2024, our Certificate of Incorporation was amended to change our name from “The Singing Machine Company, Inc.”

to “Algorhythm Holdings, Inc.” In addition, effective September 8, 2024, our ticker symbol was changed from “MICS”

Stock Split and Increase in Authorized Shares

January 13, 2025, our stockholders voted to authorize our board of directors to effect a reverse stock split of the outstanding shares

of our common stock at a specific ratio within a range of 1-for-10 to a maximum of 1-for-250 and to amend our certificate of incorporation

to increase the number of authorized common stock from 100,000,000 to 800,000,000 shares.

On January 14, 2025, our board of directors

approved a reverse stock split of 1-for-200 ratio and approved the filing of a certificate of amendment to our certificate of incorporation

to effect the reverse stock split and to increase our authorized shares of common stock from 100,000,000 to 800,000,000.

stock split took effect on February 10, 2025.

In accordance with SEC rules and regulations, all share numbers and prices throughout this

report and our consolidated financial statements reflect post-reverse stock split numbers.

SemiCab and Singing Machine businesses are each in very different stages of development.

Accordingly, our plans for growing each of them

are very different.

is an early-stage business that is not yet contributing a material amount of revenue to us.

We intend to invest in our SemiCab business

to develop and grow it into a significant revenue producer for us.

This will involve investments in the continued research and development

of its technology, the hiring of additional qualified employees, marketing and advertising initiatives, and back-office support.

SemiCab is a nascent business, it has already acquired some multinational consumer products companies as customers.

We believe that as

existing customers experience the benefits of our SemiCab logistics and distribution solutions, they will begin to increase their use

We also believe that SemiCab’s proven ability to improve truck utilization rates and improve trucking capacity without

adding more trucks, drivers or driven miles will be of substantial interest to additional companies that can benefit from SemiCab.

acquired the United States component of our SemiCab business on July 3, 2024.

We may make additional investments in companies operating

in the AI distribution and logistics space that we believe are complementary to our SemiCab business.

Our investments could involve an

acquisition of the assets or equity of complementary companies or businesses, or could involve a strategic partnership or joint venture

with complementary companies or businesses.

We believe that additional investments could provide us with new AI logistics and distribution

technologies, services and resources that we can implement across our entire SemiCab business, or could help us to more quickly expand

our SemiCab footprint into other parts of the world.

We are actively evaluating additional opportunities to expand our SemiCab business

through investments in complementary AI logistics and distribution businesses and companies.

contrast to our SemiCab business, our Singing Machine business has been successfully operating worldwide for decades.

Our karaoke products

are well-known and established with retailers and consumers in the countries in which we sell them.

Our plan for Singing Machine is to

continue to focus on customer retention through loyalty programs for the online and brick-and-mortar retailers offering our products

and compelling offer promotions, discounts, and special deals to attract customers and increase conversions.

We also intend to reduce

costs through overhead trimming and the use of new selling and marketing methodologies, leverage data analytics to better understand

new trends in consumer preferences for our products, explore new product features and product offerings, and support our new and existing

products with fun and exciting digital marketing and advertising initiatives.

We may also explore entering new markets that may offer

more profitable avenues for our products.

generated net sales of $23,494,000 for the year ended December 31, 2024, compared to $29,198,000 for the nine-month transition

period ended December 31, 2023.

The decrease was primarily due to decreases in sales to Walmart that resulted from us not

participating in Walmart’s national Black Friday promotion and decreases in sales due to the loss of retail shelf space at

Gross profit decreased $1,409,000 to $4,781,000, or 20.4% of net sales, for the year ended December 31, 2024 compared to

$6,190,000, or 21.2% of net sales, for the nine-month transition period ended December 31, 2023.

The decrease was due primarily to

the decrease of $5,704,000 for net sales, partially offset by a corresponding decrease of $4,295,000 for cost of goods sold

associated with less products being manufactured for sale.

Our operating expenses increased $6,373,000 to $18,706,000 for the

year ended December 31, 2024 from $12,333,000 for the nine-month transition period ended December 31, 2023, primarily due to an

increase in general and administrative expenses incurred for the growth and development of our SemiCab business, a loss on the

issuance of warrants incurred in connection with our December 2024 public offering of securities, legal and accounting expenses

incurred in connection with the acquisition of SemiCab, Inc.’s business in July 2024 and the capital raising activities that we engaged

in during 2024, and impairment of goodwill recorded in connection with the acquisition of the SemiCab, Inc.’s business.

As a result, we

incurred a loss from operations of $13,925,000 during the year ended December 31, 2024.

We generated net losses available to common stockholders of $23,257,000, or

$353.87 per share of common stock, for the year ended December 31, 2024, compared to $6,398,000, or $263.04 per share of

common stock, for the nine-month transition period ended December 31, 2023.

We had total assets of $18,302,000 and $27,715,000 at

December 31, 2024 and 2023, respectively.

Net cash used by operating activities was $8,556,000 for the year ended December 31, 2024

compared to net cash provided by operating activities of $411,000 for the nine- month transition period ended December 31,

most significant contributors to the increase in our net loss available to common stockholders were a one-time, non-cash charge of

$3,592,000 for impairment of goodwill and a one-time, non-cash loss of $8,889,000 on the issuance of warrants.

incurred a one-time, non-cash charge of $3,592,000 for impairment of goodwill in connection with our acquisition of SemiCab,

Inc.’s business on July 3, 2024.

We tested the recorded amount of goodwill for impairment on December 31, 2024 to see if the

carrying amount of goodwill exceeded its carried value.

We calculated a market-based valuation utilizing inputs classified as level

3 on the fair value hierarchy by multiplying one by projected 2025 revenue for the SemiCab, Inc.’s business and determined an

impairment charge of $3,592,000 should be recorded as of December 31, 2024.

incurred a one-time, non-cash loss of $8,889,000 in connection with the public offering of securities that we completed on

December 6, 2024.

In that offering, we sold Series A warrants and Series B warrants that had certain features and were subject to

certain contingencies that resulted in us having to record a warrant liability of $16,603,000 on our balance sheet and a loss on the

issuance of warrants of $8,889,000 on our income statement.

All of the contingencies that the Series A warrants were subject to were

satisfied in January 2025, and of the Class B warrants were exercised in full in January 2025.

As a result, we expect that the

warrant liability will be reclassified as equity on our balance sheet for our fiscal quarter ended March 31, 2025.

expect net sales of our Singing Machine karaoke products to decrease over the next 12 months due to the negative impact on our

business of recently implemented tariffs on our products manufactured in China.

However, we expect revenue generated from our

SemiCab business to increase over the next 12 months as we generate more business from our growing customer base in the United

As a result, total net sales are expected to increase over the next 12 months.

We expect gross profit to improve over the

next 12 months as costs of goods sold remain at similar levels, subject to uncertainty surrounding the recently implemented tariffs

on our products manufactured in China, and sales of our higher margin, newer streaming technology karaoke machines increase as a

percentage of total net sales.

We expect operating expenses to remain flat, if not decrease, over the next 12 months as we implement

initiatives designed to reduce general and administrative expenses, particularly those related to marketing and advertising

The reductions achieved may be partially offset by legal and accounting expenses that we incur as we engage in

additional capital-raising activities as needed to fund our business and expenses that we incur to fund the growth and development

of our SemiCab business.

Net loss available to common stockholders is expected to decrease substantially during the next 12 months

primarily due to the fact that we do not expect to incur any non-cash losses in connection with the issuance of warrants requiring

liability classification.

We also expect net loss available to common stockholders to decrease due to the aforementioned

improvements in gross profit that we expect to realize and the decreases in general and administrative expenses that we intend to

Notwithstanding

the foregoing, in the event we complete additional acquisitions of controlling or non-controlling financial interests in other complementary

businesses or companies through mergers, acquisitions, joint ventures or other strategic initiatives, such as the acquisition of the

United States component of our SemiCab business on July 3, 2024, our financial results will include and reflect the financial results

of the target entities.

Accordingly, the completion of any such transactions in the future may have a substantial beneficial or negative

impact on our business, financial condition and results of operations.

Accounting Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our audited consolidated

financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“GAAP”).

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts

of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

When making these estimates

and assumptions, we consider our historical experience, our knowledge of economic and market factors and various other factors, that

we believe to be reasonable under the circumstances.

Actual results may differ under different estimates and assumptions.

accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding

of our consolidated financial statements because they inherently involve significant judgments and uncertainties.

For a more complete

discussion of our accounting policies and procedures, see our consolidated financial statements beginning on page F-1 of this report.

for Sales Returns and Returns Asset

we have no overstock return privileges in its vendor agreements with its customers, we do accept defective returns, warranty exchanges

and overstock from seasonal customers.

We estimate the sales value of goods to be returned from our allowance programs for goods returned

from the customer for various reasons, whereby a reserve for sales returns is recorded based on historic return amounts, specific events

as identified and management estimates.

We estimate the net realizable value of these expected future sales returns.

The net realizable value of these estimated

returns is classified as return assets as part of current assets on the accompanying consolidated financial statements.

is comprised primarily of electronic karaoke equipment, microphones, and accessories, and are stated at the lower of cost or net realizable

value, as determined using the first in, first out method.

We reduce inventory on hand to its net realizable value on an item-by-item

basis when it is apparent that the expected realizable value of an inventory item falls below its original cost.

A charge to cost of

sales results when the estimated net realizable value of specific inventory items declines below cost.

Management regularly reviews our

investment in inventories for such declines in value.

Warrant Liability

classify the Series A and B warrants issued in our December 2024 public offering as a liability at its fair value.

This liability is

subject to re-measurement at each balance sheet date.

With each such re-measurement, the warrant liability will be adjusted to fair

value, with the change in fair value recognized in our statement of operations.

The fair value of these warrants requires

significate estimates by management derived from unobservable inputs.

Deviations from these estimates could result in a significate difference to our financial

Accounting Pronouncements

June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses” (Topic 326) .

This ASU represents

a significant change in the current accounting model by requiring immediate recognition of management’s estimates of current expected

credit losses.

Under the prior model, losses were recognized only as they were incurred, which delayed recognition of expected losses

that might not yet have met the threshold of being probable.

amendments in ASU 2016-03 are effective for our fiscal year beginning April 1, 2023 including interim periods within that fiscal year.

We adopted ASU 2016-03 on April 1, 2023, and the adoption did not have any material effect on our consolidated financial statements and

November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023- 07, Segment Reporting (Topic 280):

to Reportable Segment Disclosures (“ASU 2023-07”).

This ASU requires disclosure of significant segment expenses that

are regularly reviewed by the chief operating decision maker and included within each reported measure of segment profit or loss.

standard also requires disclosure of the composition of other segment items included in the measure of segment profit or loss that are

not separately disclosed.

All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable

The ASU is effective for our Annual Report on Form 10-K for the year ended December 31, 2024, and subsequent interim periods,

with early adoption permitted.

We adopted ASU

2023-07 effective December 31, 2024 with additional disclosures detailed in the subsequent notes.

December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

This ASU 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 and individual 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 us for our fiscal

year beginning January 1, 2025, with early adoption permitted.

We are currently evaluating the impact of adopting this standard

on our consolidated financial statements and related disclosures.

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.

We are currently evaluating the impact of this standard on our consolidated financial statements and

related disclosures.

November 2024, the FASB issued ASU 2024-04, Debt – Debt with Conversion and Other Options (Subtopic 470-20) .

clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an

induced conversion.

ASU 2024-04 is effective for annual periods beginning after December 15, 2025, and interim reporting periods within

those annual reporting periods.

Early adoption is permitted for all entities that have adopted the amendments in Update 2020-06.

can be on a prospective or retrospective basis.

We are currently evaluating the impact of this standard on our consolidated financial

statements and related disclosures.

reviewed all other significant newly-issued accounting pronouncements and concluded that they either are not applicable to our operations

or that no material effect is expected on our consolidated financial statements as a result of future adoption.

of the Year Ended December 31, 2024 and the Nine-Month Transition Period Ended December 31, 2023

sales consist primarily of sales of our Singing Machine karaoke products.

We generated only a minimal amount of sales from our

SemiCab business.

Net sales decreased $5,704,000 to $23,494,000 for the year ended December 31, 2024 compared to $29,198,000 for the

nine-month transition period ended December 31, 2023.

The decrease in net sales was due primarily to decreases of $7,700,000 in

sales to Walmart that resulted from us not participating in Walmart’s national Black Friday promotion and $1,200,000 in sales

due to the loss of retail shelf space at Target.

The decrease of $8,900,000 from those two customers was partially offset by an

increase of $3,196,000 in sales to Costco and other customers.

We expect net sales of our Singing Machine karaoke products to decrease over the next 12 months due to the negative impact on our business of recently implemented tariffs on our products

manufactured in China.

However, we expect revenue generated from our SemiCab business to increase over the next 12 months as we

generate more business from our growing customer base.

As a result, total net sales are expected to increase over the next 12

of Goods Sold

of goods sold consists primarily of costs for raw materials and the manufacturing of our Singing Machine karaoke products.

incurred only a minimal amount of costs in connection with our SemiCab business.

Cost of goods sold decreased $4,295,000 to

$18,713,000 for the year ended December 31, 2024 compared to $23,008,000 for the nine-month transition period ended December 31,

The decrease in cost of goods sold was due primarily to a decrease of $3,553,000 for product manufacturing costs.

in net sales resulted in a corresponding decrease in products manufactured, resulting in lower manufacturing costs.

The decrease was

also due to a non-cash inventory impairment charge of $1,827,000 that we recorded during the nine-month transition period ended

December 31, 2023 that negatively impacted our cost of goods sold during the nine-month transition period ended December 31, 2023.

This was partially offset by an increase of $1,663,000 for our inventory reserve.

We expect cost of goods sold to remain at similar

levels over the next 12 months, subject to uncertainty surrounding the recently implemented tariffs on our products manufactured in

profit decreased $1,409,000 to $4,781,000, or 20.4% of net sales, for the year ended December 31, 2024 compared to $6,190,000, or 21.2%

of net sales, for the nine-month transition period ended December 31, 2023.

The decrease in gross profit was primarily due to a decrease

of $5,704,000 for net sales, partially offset by a decrease of $4,295,000 in cost of goods sold.

This decrease was partially offset by

an increase in higher margin sales of newer streaming technology karaoke machines as a percentage of total net sales.

We expect gross

profit to improve over the next 12 months as costs of goods sold remain at similar levels, subject to uncertainty surrounding the recently

implemented tariffs on our products manufactured in China, and sales of our higher margin, newer streaming technology karaoke machines

increase as a percentage of total net sales.

expenses consist of selling expenses, general and administrative expenses, and impairment of goodwill.

expenses consist primarily of marketing and advertising expenses that we incur in connection with advertising campaigns and online

advertising initiatives that we engage in to generate sales of our Singing Machine karaoke products.

We did not incur any selling

expenses in connection with our SemiCab business.

Selling expenses decreased $843,000 to $2,874,000 for the year ended December 31,

2024 from $3,717,000 for the nine-month transition period ended December 31, 2023.

The decrease was primarily due to a decrease of

$666,000 in online marketing and social media advertising campaigns.

We expect selling expenses to decrease over the next 12 months

as we engage in fewer, but more focused, marketing and advertising initiatives and as we navigate the negative impact of recently

implemented tariffs on sales of our karaoke products.

and Administrative Expenses

and administrative expenses consist primarily of payroll expenses, legal and accounting expenses, warehouse expenses and rent

expense associated with our Singing Machine business, and general and administrative expenses incurred in the development and growth

of our SemiCab business.

General and administrative expenses increased $3,624,000 to $12,240,000 for the year ended December 31,

2024, compared to $8,616,000 during the nine-month transition period ended December 31, 2023.

The increase was due primarily to

increases of $1,903,000 for general and administrative expenses incurred in the development and growth of our SemiCab business and

$923,000 for warehouse expenses.

We expect general and administrative expenses to decrease over the next 12 months as we implement

actions designed to reduce general and administrative expenses, particularly those related to marketing and advertising initiatives.

The reductions achieved may be partially offset by legal and accounting expenses that we incur in connection with capital-raising

activities that we engage in as needed to fund our business and expenses that we incur to fund the growth and development of our

SemiCab business.

of goodwill consists of the expense that we incurred from the write down of the goodwill that we recorded in connection with the acquisition

of SemiCab, Inc.’s business on July 3, 2025.

We recorded impairment of goodwill of $3,592,000 for the year ended December 31, 2024.

We did not record any impairment of goodwill for the nine-month transition period ended December 31, 2023.

expenses consists primarily of loss on the issuance of warrants that we incurred in connection with the public offering of

securities that we completed on December 6, 2024, and interest expense that we incurred in connection with shares of common stock

that we issued to investors in our October 2024 notes offering.

We incurred only a minimal amount of other expenses in connection

with our SemiCab business.

Other expenses increased $10,187,000 to $10,442,000 for the year ended December 31, 2024, compared to

$255,000 for the nine-month transition period ended December 31, 2023.

The increase was due primarily to increases of $8,889,000 for

non-cash losses that we incurred in connection with the issuance of the Series A and Series B warrants in the public offering of

securities that we completed on December 6, 2024, and $1,588,000 for non-cash interest expense that we incurred in connection with

shares of common stock that we issued to investors in our various financing transactions during 2024.

Loss Attributable to Non-Controlling Interest

loss attributable to non-controlling interest consists of the loss allocated to SemiCab, Inc., which owns 20% of the outstanding membership

interests of SemiCab Holdings.

SemiCab Holdings owns our SemiCab business.

We acquired our SemiCab business from SemiCab, Inc.

3, 2024, and, as part of the transaction, granted SemiCab, Inc.

a 20% membership interest in SemiCab Holdings.

The net loss attributable

to non-controlling interest of $1,110,000 represents the amount of loss incurred by SemiCab that was allocated to SemiCab, Inc.

its 20% membership interest in SemiCab Holdings.

We expect net loss attributable to non-controlling interest to increase over the next

12 months as we continue to invest in the development and growth of SemiCab’s business.

And Capital Resources

our inception, we have funded our operations primarily through cash generated by our operations, private sales of equity securities and

the use of short- and long-term debt.

As of December 31, 2024, our cash balance was $7,550,000.

cash used by operating activities was $8,556,000 during the year ended December 31, 2024 compared to net cash provided by operating

activities of $411,000 during the nine-month transition period ended December 31, 2023.

The difference of $8,967,000 was due

primarily to increases of $17,969,000 for net loss and $4,135,000 for refunds due to customers, and a decrease of $11,811,000 for

accounts payable and accrued expenses.

This was partially offset by increases of $8,889,000 for losses on the issuance of warrants

that we incurred in connection with the public offering of securities that we completed on December 6, 2024, $8,442,000 for accounts

receivable $3,352,000 for inventory, and $3,592,000 for impairment of goodwill.

cash used by investing activities was $2,245,000 during the year ended December 31, 2024, compared to $14,000 during the nine-month transition

period ended December 31, 2023.

The increase of $2,231,000 was due primarily to increases of $1,777,000 for advances to

SMCB under our loan agreement with them and $415,000 for pre-acquisition advances to SemiCab, Inc.

cash provided by financing activities was $11,648,000 for the year ended December 31, 2024, compared to $3,411,000 for the

nine-month transition period ended December 31, 2023.

The increase of $8,237,000 was due primarily to an increase of $9,403,000 for

proceeds received from the sale of stock, net of offering costs, and $2,000,000 for proceeds from the issuance of senior secured

notes, net of discounts.

This was partially offset by an increase of $2,353,000 for repayments of the senior secured notes and

$631,000 for payments on merchant cash advances payable.

primary sources of capital since September 30, 2024 are set forth below.

October 22, 2024, we entered into a securities purchase agreement with various accredited investors pursuant to which we sold original

issue discount senior secured notes in the aggregate principal amount of $2,352,941 for aggregate gross proceeds of $2,000,000.

a total of 11,500 shares of our common stock to the investors.

We registered the resale of these shares in a registration statement on

Form S-1 that was declared effective by the SEC on December 6, 2024.

December 6, 2024, we sold 21,000 shares of our common stock and pre-funded warrants to purchase 258,412 shares of our common stock in

lieu of receiving shares of common stock to accredited investors.

Each share of our common stock or pre-funded warrant in lieu thereof

was sold together with a Series A warrant to purchase one share of our common stock and a Series B warrant to purchase one share of our

common stock at an offering price of $34 per share of common stock or pre-funded warrant.

We issued Series A warrants for a total of 279,412 shares of common stock and Series B warrants for a total of 279,412

shares of common stock.

Univest Securities served as our exclusive

placement agent in connection with the offering.

We paid Univest Securities a cash fee equal to seven percent of the aggregate gross

proceeds received in the offering and a non-accountable expense allowance equal to one percent of the aggregate gross proceeds received

in the offering and reimbursed Univest Securities for various expenses incurred in connection with the offering.

The offering was made

pursuant to that certain registration statement on Form S-1, file no.

333-283178, as amended, that we originally filed with the SEC on

November 12, 2024, and that was declared effective by the SEC on December 6, 2024.

We received net proceeds of $8,370,000 from the offering

after deducting placement agent fees and other offering expenses.

December 18, 2024, we sold 120,337 shares of our common stock to institutional investors in a registered direct offering at a purchase

price of $16.62 per share.

Univest Securities served as our exclusive placement agent in connection with the offering.

We paid Univest

Securities a cash fee equal to eight percent of the aggregate gross proceeds received in the offering, and reimbursed Univest Securities

for various expenses incurred in connection with the offering.

The offering was made pursuant to that certain registration statement

on Form S-3, file no.

333-269183 that we originally filed with the SEC on January 11, 2023, and that was declared effective by the SEC

on January 20, 2023.

We received net proceeds of $1,665,000 from the offering after deducting placement agent fees and other offering

date, our capital needs have been met through cash generated by our operations, sales of our equity securities and the use of short-

and long-term debt to fund our operations.

We have used these sources of capital to pay virtually all of the costs and expenses that

we have incurred to date.

These costs and expenses have been comprised primarily of the professional fees, employee compensation expenses,

and general and administrative expenses discussed above.

We intend to continue to rely upon each of these sources to fund our operations

and expansion efforts, including additional acquisitions of controlling or non-controlling financial interests in other complementary

businesses and companies during the next 12 months.

can provide no assurance that these sources of capital will be adequate to fund our operations and expansion efforts during the next

If these sources of capital are not adequate, we will need to obtain additional capital through alternative sources of financing.

We may attempt to obtain additional capital through the sale of equity securities or the issuance of short- and long-term debt.

raise additional funds by issuing shares of our common stock, our stockholders will experience dilution.

If we raise additional funds

by issuing securities exercisable or convertible into shares of our common stock, our stockholders will experience dilution in the event

the securities are exercised or converted, as the case may be, into shares of our common stock.

Debt financing may involve agreements

containing covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, issuing equity

securities, making capital expenditures for certain purposes or above a certain amount, or declaring dividends.

In addition, any equity

securities or debt that we issue may have rights, preferences and privileges senior to those of the shares of common stock held by our

stockholders.

have not made arrangements to obtain additional capital and can provide no assurance that additional financing will be available in an

amount or on terms acceptable to us, if at all.

Our ability to obtain additional capital will be subject to a number of factors, including

market conditions and our operating performance.

These factors may make the timing, amount, terms and conditions of any proposed future

financing transactions unattractive to us.

If we cannot raise additional capital when needed, or if such capital cannot be obtained on

acceptable terms, we may not be able to pay our costs and expenses as they are incurred, take advantage of future acquisition opportunities,

respond to competitive pressures or unanticipated events, or otherwise execute upon our business plan.

This may adversely affect our

business, financial condition and results of operations and, in the extreme case, cause us to discontinue our operations.

August 26, 2024, the we received a letter from the Nasdaq Listing Qualification Staff of the Nasdaq indicating that we were

not in compliance with Nasdaq Listing Rule 5550(a)(2) because the closing bid price per share for our common stock had closed below

$1.00 for more than 30 consecutive business days.

We were given until February 24, 2025, to regain compliance with the

December 30, 2024, we received notice from the staff indicating that the bid price for our common stock had

closed below $0.10 per share for the 13-consecutive trading day period ended December 27, 2024 and, accordingly, we would be

subject to the provisions contemplated under Nasdaq Listing Rule 5810(c)(3)(A)(iii) and its securities would be subject to delisting

from Nasdaq unless we timely request a hearing before the Nasdaq Hearings Panel.

March 25, 2025, we received a letter from The Nasdaq stating that we had regained compliance with the minimum bid price

requirement of $1.00 per share for continued listing on the Nasdaq, as set forth in Nasdaq Listing Rule 5550(a)(2).

be subject to a mandatory panel monitor for a period of one year from March 25, 2025.

If, within that one-year monitoring period, the

Nasdaq Listing Qualifications staff finds that we are again out of compliance with the minimum bid price requirement, notwithstanding

Nasdaq Listing Rule 5810(c)(2), then the staff will issue a delist determination letter and we will have an opportunity to request

a new hearing with the initial Nasdaq hearing panel or a newly convened hearing panel if the initial panel is unavailable.

Sheet Arrangements

of December 31, 2024, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred

to as structured finance or special purpose entities, that had been established for the purpose of facilitating off-balance sheet arrangements

or for other contractually narrow or limited purposes.

As such, we are not materially exposed to any financing, liquidity, market or

credit risk that could arise if we had engaged in such relationships.

Quantitative and Qualitative Disclosures About Market Risk.

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What changed 10-K

Item 7. Management’s Discussion and Analysis