What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-05-15 compared with 2024-11-19 · 310 added, 297 removed, 9 unchanged (99% of the section changed)

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

Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties.

Words such as “anticipates,”

“expects,” “intends,” “goals,” “plans,” “believes,” “seeks,”

“estimates,” “continues,” “may,” “will,” “would,” “should,” “could,”

and variations of such words and similar expressions are intended to identify such forward-looking statements.

In addition, any statements

that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, uncertain events

or assumptions, and other characterizations of future events or circumstances are forward-looking statements.

Such statements are based

on management’s expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual

results to differ materially from those expressed or implied in our forward-looking statements.

Such risks and uncertainties include

those described throughout this report and our Transition Report on Form 10-KT for the nine months period ended December 31, 2023, particularly

the “Risk Factors” sections of such reports.

Given these risks and uncertainties, readers are cautioned not to place undue

reliance on such forward-looking statements.

Readers are urged to carefully review and consider the various disclosures made in this

Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission (the “SEC”) that disclose

risks and uncertainties that may affect our business.

The forward-looking statements in this Form 10-Q are made as of the date of this

filing, and we do not undertake, and expressly disclaim any duty to update such statements, whether as a result of new information, new

developments or otherwise, except to the extent that disclosure may be required by law.

should read the following management’s discussion and analysis of financial condition and results of operations in conjunction

with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report

on Form 10-Q and with our audited financial statements and related notes thereto and Management’s Discussion and Analysis of Financial

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,” “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.

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.

This 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.

The following

should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this report and the audited consolidated financial statements and

notes thereto included in our annual

report on Form 10-K for the year ended December 31, 2024.

are an artificial intelligence (“AI”) technology and consumer electronics holding company with two primary business units

– SemiCab and Singing Machine.

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

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

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

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

Our results of operations, cash flows,

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

Capital markets, LLC, as sales agent (the “Agent”), pursuant to which the Company could offer and sell, from time to time,

through the Agent (the “ATM Offering”), up to approximately $1,100,000 in shares of the Company’s common stock.

July 8, 2024, the Company entered into the First Amendment to the Sales Agreement (the “Amendment”) to increase the number

of shares to be sold in the ATM Offering to $2,020,000.

On August 9, 2024, the Company entered into the Second Amendment to the

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

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

LLC” and collectively with the Company, the “Buyer”), SemiCab, Inc., a Delaware corporation (“SemiCab”

or the “Seller”), Ajesh Kapoor and Vivek Sehgal entered into an asset purchase agreement (the “Asset Purchase Agreement”)

pursuant to which the Seller agreed to sell and assign to the Company, and the Company agreed to purchase and assume from the Seller,

substantially all the assets, and certain specified liabilities relating to the business of the Seller.

Subject to certain exceptions

set forth in the Asset Purchase Agreement, the parties agreed that the Buyer will not assume the liabilities of the Seller.

an artificial intelligence, cloud-based collaborative transportation platform built to achieve the scalability required to predict and

optimize semi-tractor trailer load efficiency.

July 3, 2024, the parties closed on the asset purchase whereby the Company issued to the Seller (i) 641,806 shares of the Company’s

common stock (ii) a twenty percent (20%) membership interest in SemiCab LLC.

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 (“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,

LLC (the “Landlord”), pursuant to which MICS NY agreed to lease approximately 10,000 square feet of ground floor retail space

and a portion of the basement underneath the ground floor retail space in the property located at 111 West 24 th Street, New

York, New York (the “Premises”).

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 operations as a percentage

of net sales as follows:

the Three Months Ended

the Nine Months Ended

Cost of Goods Sold

Operating Expenses

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

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.

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.

May 2, 2025 (the “Closing Date”), we and SemiCab Holdings entered into an equity purchase agreement with SemiCab Inc.

(i) SemiCab Holdings purchased 9,999 shares of the issued and outstanding equity shares, Rs.

10 par value, of SMCB, representing

99.99% of the issued and outstanding equity shares of SMCB, for $1,750,000, the payment of which amount was evidenced by the issuance

of a promissory note by us to SemiCab, Inc., and (ii) we purchased the 20% membership interest in SemiCab Holdings then held by SemiCab,

for aggregate consideration consisting of 119,742 shares of our common stock.

The promissory note provides that $1,500,000 is due

and payable by us on the first anniversary of the Closing Date and the remaining $250,000 is due and payable by us on the 18-month anniversary

of the Closing Date.

The promissory note bears interest at six percent per annum.

the Closing Date, we and SemiCab Holdings entered into an amended and restated employment agreement with each of Ajesh Kapoor and Vivek

Sehgal pursuant to which Mr.

Kapoor agreed to serve as the Chief Executive Officer and Chief Technology Officer of SemiCab Holdings and

Sehgal agreed to serve as the Chief Product Officer of SemiCab Holdings.

Pursuant to the terms of the employment agreements, SemiCab

Holdings granted Messrs.

Kapoor and Sehgal a membership interest in SemiCab Holdings with three quarters of each such grant subject to

certain forfeiture rights tied to continued employment with SemiCab Holdings.

Additionally, Mr.

Kapoor was granted the right to serve

as a member of our board of directors and the right to appoint an additional member of our board of directors upon the occurrence of

certain specified events.

on the Closing Date, we, SemiCab Holdings, Ajesh Kapoor and Vivek Sehgal entered into an amended and restated limited liability company

agreement for SemiCab Holdings which sets forth the terms and conditions governing the operation and management of SemiCab Holdings.

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 several 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 of SemiCab.

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 and acquired the India component of our SemiCab business

on May 2, 2025.

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.

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 $1,993,000 for the three-month period ended March 31, 2025, compared to $2,426,000 for the three-month period

ended March 31, 2024.

The decrease in net sales was due primarily to the loss of retail shelf space at two major customers.

decreased $2,000 to $500,000, or 25.1% of net sales, for the three-month period ended March 31, 2025, compared to $502,000, or 20.7%

of net sales, for the three-month period ended March 31, 2024.

The decrease was due primarily to the decrease of $433,000 for net sales,

partially offset by a corresponding decrease of $431,000 for cost of goods sold associated with less products being manufactured for

Our operating expenses increased $521,000 to $3,310,000 for the three-month period ended March 31, 2025, from $2,789,000 for the

three-month period ended March 31, 2024, primarily due to an increase in general and administrative expenses incurred for the growth

and development of our SemiCab business.

As a result, we incurred a loss from operations of $2,810,000 for the three-month period ended

March 31, 2025 compared to $2,287,000 for the three-month period ended March 31, 2024.

generated net losses available to common stockholders of $9,191,000, or $4.66 per share of common stock, for the three-month period ended

March 31, 2025, compared to $2,367,000, or $73.76 per share of common stock, for the three-month period ended March 31, 2024.

total assets of $10,461,000 and $18,302,000 at March 31, 2025 and December 31, 2024, respectively.

Net cash used by operating activities

was $3,108,000 for the three-month period ended March 31, 2025 compared to $2,557,000 for the three-month period ended March 31, 2024.

most significant contributor to the increase in our net loss available to common stockholders was a one-time, non-cash charge of $6,468,000

for the change in fair value of warrants that we issued in connection with the public offering of securities that we completed on December

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 at December 31, 2024.

All of the contingencies

that the Series A warrants were subject to were satisfied in January 2025, and all of the Class B warrants were exercised in full during

January and February 2025.

We re-measured the warrant liability for the Class A and B warrants on their respective measurement dates

and adjusted the liability to fair value which resulted in us recording the non-cash charge of $6,468,000 for the change in fair value

The warrant liability was reclassified as equity on our condensed consolidated balance sheet for our fiscal quarter ended

March 31, 2025.

As a result, we did not have any warrant liability on our condensed consolidated balance sheet at March 31, 2025 and

will not incur any further non-cash charges for the change in fair value of warrants.

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

from 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 States and India.

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

We expect gross profit to remain at similar levels over the

next 12 months as costs of goods sold decrease commensurate with the decrease in net sales of our karaoke products.

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 initiatives.

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 additional non-cash charges for

the change in fair value of warrants, and due to the decreases in general and administrative expenses that we intend to generate.

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 and the acquisition of the India component of our SemiCab business on

May 2, 2025, 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.

of the Three-Month Periods Ended March 31, 2025 and 2024

sales consist primarily of sales of our Singing Machine karaoke products and sales of our SemiCab logistics and distribution solutions.

Net sales decreased $433,000 to $1,993,000 for the three-month period ended March 31, 2025, compared to $2,426,000 for the three-month

period ended March 31, 2024.

The decrease in net sales was due primarily to the loss of retail shelf space at two major customers.

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

from 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 States and India.

of Goods Sold

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

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

Cost of goods sold decreased $431,000 to $1,493,000 for the three-month

period ended March 31, 2025, compared to $1,924,000 for the three-month period ended March 31, 2024.

Our decrease in net sales of our

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

We expect costs

of goods sold to decrease over the next 12 months commensurate with the decrease in net sales of our karaoke products due to the negative

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

expenses consist of selling expenses and general and administrative expenses.

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 increased $134,000 to $764,000 for the three-month period ended March 31, 2025, from $630,000

for the three-month period ended March 31, 2024.

The increase was due primarily to an increase in online marketing and social media advertising

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

General and administrative expenses increased $387,000 to $2,546,000 for the three-month period ended March 31, 2025, compared

to $2,159,000 for the three-month period ended March 31, 2024.

The increase was due primarily to increases of $480,000 for general and

administrative expenses incurred in the development and growth of our SemiCab business.

We expect general and administrative expenses

to decrease over the next 12 months as we implement actions designed to reduce general and administrative expenses.

The reductions achieved

may be partially offset by an increase in expenses that we incur to fund the growth and development of our SemiCab business.

expenses consists primarily of a non-cash loss that we incurred for the change in fair value of the warrants in connection with the public

offering of securities that we completed on December 6, 2024.

We incurred only a minimal amount of other expenses in connection with

our SemiCab business.

Other expenses increased $6,456,000 to $6,468,000 for the three-month period ended March 31, 2025, compared to

$28,000 for the three-month period ended March 31, 2024.

The increase was due primarily to an increase of $6,468,000 for the change in

fair value of warrants.

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 $103,000 represents the amount of loss incurred by SemiCab that was allocated to SemiCab, Inc.

its 20% membership interest in SemiCab Holdings for the three-month period ended March 31, 2025.

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

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.

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

the Company has insufficient funds to sustain operations for at least one year after the date of this report, and it may not be able

to meet its payment obligations from operations and related commitments, if the Company is not able to obtain outside financing to allow

the Company to continue as a going concern.

Based on these factors, the Company has substantial doubt that it will continue as a going

concern for the twelve months following the issuance date of the financial statements included elsewhere in this report.

Company’s plan to alleviate the going concern issue is to increase revenue while controlling operating costs and expenses and obtaining

funds from outside sources of financing to generate positive financing cash flows.

While management is optimistic about its ability to

raise funds to fund operations for at least one year after the date of this report, there can be no assurance that any such measures

will be successful.

Company’s ability to raise additional funds will depend, in part, on the success of our product development activities, and other

events or conditions that may affect the share value or prospects, as well as factors related to financial, economic and market conditions,

many of which are beyond our control.

There can be no assurances that sufficient funds will be available to us when required or on acceptable

terms, if at all.

Accordingly, management has concluded that these plans do not alleviate substantial doubt about the Company’s

ability to continue as a going concern.

Our failure to achieve or maintain profitability could negatively impact the value of our common

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 March 31, 2025, our cash balance was $3,296,000.

cash used by operating activities was $3,108,000 during the three-month period ended March 31, 2025, compared to $2,557,000 during the

three-month period ended March 31, 2024.

The increase of $551,000 was due primarily to an increase of $6,927,000 for net loss and a decrease

of $1,197,000 for accounts receivable.

This was partially offset by increases of $6,468,000 for loss on change in fair value of warrants

that we incurred in connection with the public offering of securities that we completed on December 6, 2024 and $892,000 for refunds

due to customers.

cash used by investing activities was $673,000 during the three-month period ended March 31, 2025.

We did not have any cash flows from

investing activities during the three-month period ended March 31, 2024.

The increase of $673,000 was due primarily to increases of $672,000

for advances to SMCB under our loan agreement with them.

cash used by financing activities was $473,000 for the three-month period ended March 31, 2025, compared to $21,000 for the three-month

period ended March 31, 2024.

The increase of $452,000 was due primarily to an increase of $473,000 for repayments of promissory notes

to related parties.

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.

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.

we 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.

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

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.

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, we received a letter from 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 rule.

December 30, 2024, we received notice from the Nasdaq 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).

We will 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 March 31, 2025, 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.

Accounting Estimates

2 unchanged sentences

As the number of variables

and assumptions affecting the judgement increases such judgements become even more subjective.

While management believes that its assumptions

are reasonable and appropriate, actual results may be materially different than estimated.

The critical accounting estimates and assumptions

have not materially changed from those identified in our Transition Report for the period ended December 31, 2023.

and assumptions increases, such judgements become even more subjective.

While management believes that its assumptions are reasonable

and appropriate, actual results may be materially different than estimated.

Our critical accounting estimates and assumptions have not

materially changed from those identified in our Annual Report on Form 10-K for the year ended December 31, 2024.

Quantitative and Qualitative Disclosures About Market Risk

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What changed 10-Q

Item 2. Management’s Discussion and Analysis