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What changed in Algorhythm Holdings, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Algorhythm Holdings, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+556 added−377 removedSource: 10-K (2025-04-15) vs 10-K (2023-07-14)

Top changes in Algorhythm Holdings, Inc.'s 2024 10-K

556 paragraphs added · 377 removed · 125 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

29 edited+61 added−62 removed7 unchanged
Biggest changeITEM 1. BUSINESS Overview We 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.
Biggest changeWe 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. Our mission is to “create joy through music.” To deliver on this mission, we are focused on a multi-prong approach.
We continue to focus our marketing efforts on growing brand awareness among our target consumer demographic, optimizing marketing investments, and executing an integrated marketing strategy. We believe an important component of our future growth is based on speaking to the right customer, with the right content, in the right channel, at the right time.
We continue to focus our marketing efforts on growing brand awareness among our target consumer demographic, optimizing marketing investments, and executing an integrated marketing strategy. We believe that an important component of our future growth is based on speaking to the right customer, with the right content, in the right channel, at the right time.
Sales are recognized upon transfer of title to our customers and are made utilizing standard credit terms of approximately 60-90 days. Our sales terms indicate that we only accept returns for defective merchandise, however we have accepted overstock returns from our retail partners in the past.
Sales are recognized upon transfer of title to our customers and are made utilizing standard credit terms of 60 to 90 days. Our sales terms indicate that we only accept returns for defective merchandise, however we have accepted overstock returns from our retail partners in the past.
In the United States, these safety standards are promulgated by federal, state and independent agencies such as the US Consumer Product Safety Commission, ASTM International, the Federal Communications Commission, and various states Attorney Generals and state regulatory agencies.
In the United States, these safety standards are promulgated by federal, state and independent agencies such as the United States Consumer Product Safety Commission, ASTM International, the Federal Communications Commission, and various states Attorney Generals and state regulatory agencies.
We believe our core karaoke line offers best-in-class advanced features, including but not limited to, enabling customers to output video to a TV screen, correcting singer’s pitch in real-time with our proprietary PitchLab™ technology, streaming karaoke content directly to the machine via WiFi, casting karaoke songs from a mobile device to our karaoke machines through our SingCast™ casting technology, singing duets, and displaying scrolling lyrics in-time with the song.
Our core karaoke line offers advanced features, including but not limited to, enabling customers to output video to a TV screen, correcting singer’s pitch in real-time with our proprietary PitchLab™ technology, streaming karaoke content directly to the machine via WiFi, casting karaoke songs from a mobile device to our karaoke machines through our SingCast™ casting technology, singing duets, and displaying scrolling lyrics in-time with the song.
Microphones and Accessories — we currently offer a line of traditional microphone accessories that are compatible with our karaoke machines. These microphones feature an assortment of colors, come wired or wireless, and may include new features like party lighting and voice changing effects. We are also seeing growth in portable Bluetooth microphones which are marketed under our Party Machine brand.
Microphones and Accessories We offer a line of traditional microphone accessories that are compatible with our karaoke machines. These microphones feature an assortment of colors, come wired or wireless, and may include new features like party lighting and voice changing effects. We also offer portable Bluetooth microphones which are marketed under our Party Machine brand.
We have implemented online marketing, social media, and digital analytics tools, which allow us to better measure the performance of our marketing activities, learn from our consumers, and receive valuable insights into industry and competitor activities. Customer service is a critical component of our marketing strategy.
We have implemented online marketing, social media, and digital analytics tools, which allow us to better measure the performance of our marketing activities, learn from our consumers, and receive valuable insights into industry and competitor activities. 9 Customer service is a critical component of our marketing strategy for our karaoke products.
The direct import program allows our customers to take advantage of better ocean container rates through bigger volume and allows us to bypass our California warehouse. We maintain a third-party logistics warehouse in Canada where we sell directly to retail customers and independent channels in Canada. Historically, most of our customers pick up goods from our warehouse (freight collect).
The direct import program allows our customers to take advantage of better ocean container rates through bigger volume and allows us to bypass our 3PL warehouses. We sell directly to retail customers and independent channels in Canada from our 3PL warehouse in Canada. Historically, most of our customers pick up goods from our warehouse (freight collect).
Music Subscriptions — in conjunction with our premium partner, Stingray, we offer karaoke music subscription services for the iOS and Android platforms as well as a web-based download store and integrated streaming services for our hardware. We currently offer almost 20,000 licensed karaoke songs in the catalog.
Music Subscriptions In conjunction with Stingray Group, we offer karaoke music subscription services for the iOS and Android platforms as well as a web-based download store and integrated streaming services for our hardware.
Business Segments We operate in one principal industry segment across geographically diverse marketplaces, selling our products globally to large, national retailers as well as independent retailers, on our retailer’s websites, and our own direct to consumer website. In North America, our customers include Amazon, Costco, Sam’s Club, Target and Wal-Mart.
Customers Singing Machine Karaoke Product Offerings We operate across geographically diverse marketplaces and sell our karaoke products globally to large, national retailers as well as independent retailers, on our retailer’s websites, and our own direct to consumer website. In North America, our customers include Amazon, Costco, Sam’s Club, Target and Wal-Mart.
Our largest international territories are the U.K. and Australia, where we sell through international distributors. We also sell to select international retail customers in geographic locations where we do not have a direct sales presence. Suppliers and Manufacturing We source our products from a variety of contract manufacturers in southern China.
Our largest international territories are the U.K. and Australia, where we sell through international distributors. We also sell to select international retail customers in geographic locations where we do not have a direct sales presence.
In 2019, we entered into a 3-year license agreement with CBS ® for its Carpool Karaoke brand, made popular by James Corden on The Late Show with James Corden. We launched an innovative Carpool Karaoke Microphone that works specifically in the car. This license agreement with CBS expired on September 30, 2022.
In 2019, we entered into a 3-year license agreement with CBS ® for its Carpool Karaoke brand, made popular by James Corden on The Late Show with James Corden. This license agreement with CBS expired on September 30, 2022. On February 28, 2023, we renewed this license agreement for an additional three years.
All of our products are independently tested by third party laboratories accepted by the Consumer Product Safety Commission to verify compliance to applicable safety standards. A similar approach is used to design and test products sold internationally. 7 Insurance We carry product liability insurance that provides us with $10,000,000 coverage with a minimal deductible.
All of our products are independently tested by third party laboratories accepted by the Consumer Product Safety Commission to verify compliance to applicable safety standards. A similar approach is used to design and test products sold internationally.
We seek to expand our direct-to-consumer sales, which we believe will increase overall gross margins and also increase brand awareness. Marketing, promotion and consumer engagement are key elements in the youth electronics, toy, and music categories. Historically, a significant percentage of our promotional spending has been structured as co-op promotion incentives with our large retail partners.
Marketing, promotion, and consumer engagement are key elements in the youth electronics, toy, and music categories. Historically, a significant percentage of our promotional spending has been structured as co-op promotion incentives with our large retail partners.
Our goods are produced by our contract manufacturers and are either shipped via ocean vessels to our distribution center in Ontario, California or we utilize a direct import program where our retail customers coordinate to pick up the goods FOB China.
Our karaoke products are manufactured by our contract manufacturers and are either shipped via ocean vessels to our two third-party logistics (“3PL”) warehouses located in California and Canada or we utilize a direct import program where our retail customers coordinate to pick up the goods FOB China.
This product category accounted for approximately 2% of our net sales in our fiscal year ended March 31, 2023. Product Development and Design Product development is a key element of our strategic growth plan. We strive to deliver many new, exciting consumer products to market every single year to retain our presence as the market-leader in consumer karaoke products.
Product Development and Design Singing Machine Karaoke Product Offerings Product development is a key element of our strategic growth plan for our karaoke products. We strive to deliver many new, exciting consumer products to market every single year to retain and strengthen our presence in consumer karaoke products.
Automotive — In January 2023, we announced at the Consumer Electronics Show that we will be entering the connected vehicle karaoke device market in partnership with Stingray Group, Inc. (“Stingray”). We have developed microphone hardware utilizing our PitchLab™ technology to offer integrated wireless microphones for connection with major automotive brand’s vehicles.
Automotive Technology We intend to enter the connected vehicle karaoke device market through a partnership that we have with Stingray Group. We have developed microphone hardware utilizing our PitchLab™ technology to offer integrated wireless microphones for connection with major automotive brand’s vehicles. We are currently in discussions with many automotive brands to offer these products.
Competition The youth electronics, toy, and music industries have many participants, none of which have a dominant market share, though certain companies may have disproportionate strength in specific product categories. We compete with a number of different companies in a variety of categories, although there is no single company that competes with us across all of our product categories.
Competition Singing Machine Karaoke Product Offerings With respect to our karaoke products, the youth electronics, toy, and music industries have many participants, none of which have a dominant market share, though certain companies may have disproportionate strength in specific product categories.
On February 28, 2023, we renewed this license agreement for an additional three years. On March 16, 2023, we entered into a three-year license agreement with Sesame Street Workshop for its Sesame Street brand for karaoke and singalong toy products, effective January 1, 2023.
On March 16, 2023, we entered into a three-year license agreement with Sesame Street Workshop for its Sesame Street brand for karaoke and singalong toy products, effective January 1, 2023. Through this license agreement, we develop and offer for sale all the iconic and beloved Sesame Street characters like Elmo, Big Bird, Cookie Monster, Abby Cadabby, and many more.
We are not dependent on any one supplier as we use many manufacturers (currently five) to make our products. We maintain a Hong Kong office that provides us with factory management, sourcing, quality control, engineering, and product development.
We maintain a Hong Kong office that provides us with factory management, sourcing, quality control, engineering, and product development.
We have no long-term contracts with these customers, and as a result, our success depends heavily on our customers’ willingness to purchase and provide floor or shelf space for our products. Seasonality We do experience heightened seasonal demand for our products in our second and third quarters of our fiscal year.
We have no long-term contracts with these customers, and as a result, our success depends heavily on our customers’ willingness to purchase and provide floor or shelf space for our products. SemiCab AI Logistics and Distribution Services In the logistics industry, we provide our contract-based, long-haul, full truckload transportation services in the United States.
The information contained on our website does not constitute a part of this Annual Report.
The information contained on, or accessible through, our website and the SEC’s website does not constitute a part of this report. The inclusion of our website and the SEC’s website in this report is an inactive textual reference only.
However, trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained. Customers Sales to our top five customers together comprised approximately 89% and 90% of our net sales for fiscal years ended March 31, 2023 and 2022, respectively.
However, trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained.
Our competitive strengths include our ability to develop innovative new products and features, speed to market, our relationships with major retailers, and the quality and pricing of our products. Intellectual Property We rely on a combination of word and design mark trademarks and trade secrets to protect our intellectual property.
The primary methods of competition in the industry consist of brand positioning, product innovation, quality, price, and timely distribution. Our competitive strengths include our ability to develop innovative new products and features, speed to market, our relationships with major retailers, and the quality and pricing of our products.
Our portfolio of owned and licensed brands and products are organized into the following categories: 5 Karaoke — including our flagship brand Singing Machine, our karaoke line is driven by quality products at affordable price points that we believe deliver great value to our customers.
Singing Machine Karaoke Product Offerings Karaoke Machines Our karaoke products are sold directly to distributors and retail customers under our flagship Singing Machine brand name and are offered at affordable price points that we believe deliver great value to our customers.
We do not intend to renew the lease agreement and have signed a service agreement with a third-party logistics company to provide domestic and Canadian warehousing services, effective September 1, 2023. 6 Sales and Marketing Our products are marketed and sold through our direct sales team, working in conjunction with independent sales representatives that provide sales and customer support for our retail customers in North America.
Sales and Marketing Singing Machine Karaoke Product Offerings Our karaoke products are marketed and sold through our direct sales team, working in conjunction with independent sales representatives that provide sales and customer support for our retail customers in North America. We seek to expand our direct-to-consumer sales, which we believe will increase overall gross margins and increase brand awareness.
Our mission is to “create joy through music.” In order to deliver on this mission, we are focused on the following multi-prong approach: ● In the short-term, improve profitability by optimizing operations and continue to expand gross margins; and ● In 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.
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.
Our kids’ products provide a high-quality introduction to singing and music entertainment for young singers and offer advanced features, such as voice changing effects, recording, Bluetooth compatibility, and portability. This product category accounted for approximately 5% of our net sales in our fiscal year ended March 31, 2023.
Singing Machine Kids Youth Electronics We have a children’s line of products offered under our Singing Machine Kids brand that have fun music entertainment features designed specifically for children. Our products for children introduce singing and music entertainment for young singers and offer advanced features, such as voice changing effects, recording, Bluetooth compatibility, and portability.
Our products are sold directly to consumers via our retail channels, ecommerce, our own website, and distributors worldwide. This product category accounted for approximately 73% of our net sales in our fiscal year ended March 31, 2023. Licensed Products — including brands such as Carpool Karaoke.
Our products are sold directly to consumers via our retail channels, ecommerce, our own website, and distributors worldwide. 6 Licensing Arrangements . We offer innovative Carpool Karaoke Microphone that works specifically in the car.
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Our products are among the most widely available karaoke products in the world.
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Item 1. Business. Unless the context requires otherwise, references in this Annual Report to “we,” “us,” “our,” and Algorhythm refer to Algorhythm Holdings, Inc. and its consolidated subsidiaries.
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Recent Events and Developments Stock Redemption Agreement Prior to August 10, 2021, we were partially held by koncepts International Limited (“koncepts”) which was a major stockholder of our company, that beneficially owned approximately 49% of our shares of common stock outstanding as of March 31, 2021. We were also partly held by Treasure Green Holdings Ltd.
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Unless otherwise expressly provided in this Annual Report, all historical per share data, number of shares issued and outstanding, stock awards, and other common stock equivalents set forth herein relating to our common stock have been adjusted to give effect to a reverse stock split of our common stock in a ratio of 1-for-200 effected on February 10, 2025.
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(“Treasure Green”), which owned approximately 2% of our common stock.
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Overview We are an AI technology and consumer electronics holding company with two primary business units – SemiCab and Singing Machine. SemiCab is an artificial intelligence (“AI”) enabled software logistics business operated through our subsidiary, SemiCab Holdings, LLC.
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In total, approximately 51% of our shares of common stock on a fully diluted basis as of March 31, 2021 were previously owned by koncepts and Treasure Green. koncepts and Treasure Green are owned by Fairy King Prawn Holdings Limited (“Fairy King”), an investment holding company incorporated in the British Virgin Islands, principally owned by our then Chairman, Philip Lau.
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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.
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On August 5, 2021, we entered into a stock redemption agreement (the “Redemption Agreement”) with koncepts and Treasure Green, pursuant to which we redeemed 654,105 shares of our common stock (the “Redeemed Shares”).
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Our 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”), 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”), and MICS Nomad, LLC, a Delaware limited liability company (“MICS NY”), and our 80%-owned subsidiary, SemiCab Holdings, LLC, a Nevada limited liability company (“SemiCab Holdings”). 2 SemiCab SemiCab is a cloud-based Collaborative Transportation Platform built to achieve the scalability required to predict and optimize loads and the use of trucks.
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The closing of the transaction 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 by us of approximately $7.2 million to koncepts and Treasure Green. The Redeemed Shares were retired and returned as unissued authorized capital.
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To orchestrate collaboration across manufacturers, retailers, distributors, and their carriers, SemiCab uses real-time data from AI-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. Since 2020, SemiCab has enabled major retailers, brands and transportation providers to address their transportation needs.
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Prior to August 10, 2021, we did business with a number of entities that are principally owned by our former Chairman, Philip Lau, including Starlight R&D Ltd (“SLRD”), Starlight Consumer Electronics USA, Inc., (“SCE”), Cosmo Communications Corporation of Canada, Inc. (“Cosmo”), Winglight Pacific, Ltd (“Winglight”) and Starlight Electronics Company Ltd (“SLE”), among others.
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SemiCab’s 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.
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Pursuant to the Redemption Agreement, neither koncepts nor Treasure Green remained stockholders of our company and SLRD, SCE, Cosmo, Winglight and SLE are no longer related parties. Reverse Stock Split and Nasdaq Listing On May 23, 2022, we effected a reverse stock split of our shares of common stock in a ratio of 1:30.
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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.
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The reverse stock split was affected to meet The Nasdaq Capital Market’s minimum bid price requirement. All information in this Annual Report on Form 10-K has been retroactively adjusted to give effect to this 1-for-30 reverse stock split.
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Trucking optimization could also reduce carbon emissions attributable to road freight. Singing Machine Through Singing Machine, we engage in the development, marketing, and sale of consumer karaoke audio equipment, accessories, and musical recordings.
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Our common stock was approved for listing on the Nasdaq Capital Market under the symbol “MICS” and began trading on the Nasdaq Capital Market on May 24, 2022.
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Recent Events and Developments Change in Fiscal Year During 2023, our board of directors approved a change in our fiscal year end from March 31 to December 31.
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Underwritten Public Offering On May 23, 2022, we entered into an underwriting agreement (the “Underwriting Agreement”) with Aegis Capital Corp., who acted as the sole underwriter (the “Underwriter”), in a firm commitment underwritten public offering pursuant to which we sold to the Underwriter 1,000,000 shares of our common stock for gross proceeds of $4.0 million, prior to deducting underwriting discounts and commissions and other estimated offering expenses of approximately $0.6 million.
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Asset Purchase On July 3, 2024, we completed the acquisition of substantially all of the assets and the assumption of certain liabilities of SemiCab, Inc. for a purchase price consisting of 3,210 shares of our common stock and a 20% membership interest in SemiCab Holdings. 3 Hospitality Lease On August 23, 2023, MICS NY entered into an agreement of lease with OAC 111 Flatiron, LLC and OAC Adelphi, LLC (collectively, the “Landlord”) pursuant to which MICS NY agreed to lease 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.
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The price to the public in the offering was $4.00 per share, before underwriting discounts and commissions. The offering closed on May 26, 2022. We received net proceeds of approximately $3.4 million.
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It was our intention to use this space as a new karaoke venue, offering immersive karaoke technology and audio-visual capabilities, with restaurant and bar offerings. Due to a lack of funding, however, we initiated termination of the lease in March 2024.
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Pursuant to the terms of the Underwriting Agreement, we issued to the Underwriter warrants to purchase up to 100,000 shares of common stock, representing 10% of the shares sold in the offering, excluding any shares sold through the over-allotment option.
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On July 26, 2024, the Landlord filed a civil action in the Supreme Court of the State of New York against us and MICS NY for alleged breach of lease, seeking monetary damages including unpaid rent, future unpaid rent, and other expenses related to the lease.
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The warrants are exercisable six months from the commencement of sales under the offering, have an exercise price of $5.00 per share and expire five years from the date of issuance. 4 Acquisition of Control On June 13, 2022, Ault Alliance, Inc.
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The complaint alleged that we and MICS NY breached the lease in various material respects.
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(“Ault Alliance”), formerly BitNile Holdings, Inc., a Delaware corporation, Ault Lending, LLC (“Ault Lending”), a California limited liability company and subsidiary of Ault Alliance, and Milton C.
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On September 25, 2024, we and MICS NY entered into a settlement agreement with OAC Flatiron and OAC Adelphi for a full release and dismissal of the complaint that became effective within five business days of our payment of $250,000 to OAC Flatiron and OAC Adelphi.
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Ault, III (“Ault”), Founder and Executive Chairman of Ault Alliance (collectively the “Reporting Persons”) filed a joint Schedule 13D filing (the “Schedule 13D”) reporting that the Reporting Persons acquired, in the aggregate, 1,405,000 shares, or 52.8% of the issued and outstanding shares of our common stock, through open market purchases.
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We made full payment of the settlement amount on October 25, 2024, and OAC Flatiron and OAC Adelphi filed a discontinuance with prejudice with the court on October 29, 2024. Oxford Credit Facility On March 28, 2024, we entered into a loan agreement and related revolving credit note with Oxford Commercial Finance (“Oxford”) for a $2,000,000 revolving line of credit.
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As disclosed in the Schedule 13D, as amended and subsequent Section 16 filings, Ault Lending currently owns, and Ault Alliance and Ault may be deemed to beneficially own, an aggregate of 1,808,000 shares of common stock, or approximately 42.8% of the outstanding shares of common stock as of the date of this Annual Report.
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On October 17, 2024, we terminated the loan agreement and note and paid them a termination fee of $40,000. As of the date of termination, we had no outstanding amounts owed to Oxford.
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The reduction in beneficial ownership percentage was a result of us selling stock in our ATM Offering (as defined and discussed below), and not from any sales of our common stock by Ault Lending. Credit Facility On October 14, 2022, we and our wholly-owned subsidiary, SMC Logistics, Inc.
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Name and Symbol Change Effective 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” to “RIME.” Amended Bylaws On October 18, 2024, we amended our bylaws to reduce the quorum necessary to hold stockholder meetings from a majority of the voting power of the shares of our common stock that are issued and outstanding to 33 1/3% of the voting power of the shares of our common stock that are issued and outstanding. 4 Private Placement On October 22, 2024, we entered into a securities purchase agreement pursuant to which we agreed to issue and sell to each purchaser: (i) an original issue discount senior secured note with a principal amount equal to such purchaser’s subscription amount divided by 0.85, and (ii) a number of shares of our common stock equal to (x) 2,300,000, multiplied by (y) such purchaser’s subscription amount, divided by (z) $2,000,000.
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(“SMC”), entered into a Credit and Security Agreement (the “Credit Agreement”) with Fifth Third Bank, National Association, as Lender (“Fifth Third”). The Credit Agreement provides for a three-year secured revolving credit facility in an aggregate principal amount of up to $15,000,000 decreased to $7,500,000 during the period of January 1 through July 31 of each year (the “Credit Facility”).
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The Offering closed on October 24, 2024. At the closing, we issued to the purchasers an aggregate of 2,300,000 shares of our common stock and notes in the aggregate principal amount of $2,352,941 for total proceeds of $2,000,000 net of original issue discount of $352,941.
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The Credit Agreement matures on October 14, 2025. The revolving Credit Facility bears interest of (a) the Prime Rate plus 0.50% or (b) the 30 day Term SOFR rate plus 3.00% (subject in each case to a floor of 0.50%), depending on the type of loan we request. “Term SOFR” means the forward-looking SOFR rate administered by CME Group, Inc.
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Univest Securities served as the placement agent in the offering and received seven percent of the gross proceeds received by us and reimbursement of the legal fees of its counsel. We repaid all of the notes in December 2024.
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(or other administrator selected by Fifth Third) and published on the applicable Bloomberg LP screen page (or such other commercially available source providing such quotations as may be selected by Fifth Third), fixed by the administrator thereof two business days prior to the commencement of the applicable interest period (provided, however, that if Term SOFR is not published for such business day, then Term SOFR shall be determined by reference to the immediately preceding business day on which such rate is published), rounded upwards, if necessary, to the next 1/8th of 1% and adjusted for reserves if Fifth Third is required to maintain reserves with respect to the relevant loans.
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Regalia Ventures Share Repurchase On November 1, 2024, we entered into a stock repurchase agreement with Regalia Ventures LLC, a Delaware limited liability company (“Regalia Ventures”), pursuant to which we agreed to pay $472,527 to repurchase 5,495 shares of our common stock that Regalia Ventures had previously purchased from us on November 20, 2023.
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We are required to pay an unused line fee of 0.35% per annum equal to the difference between (i) the maximum revolving loan limit then in effect and (ii) the average daily balance of the revolving loans for each month, which fee shall be fully earned by Fifth Third and payable monthly in arrears on the first business day of each month.
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We agreed to issue a promissory note to Regalia Holdings in the principal amount of the purchase price of the shares at the closing of the transaction. On February 18, 2025, the date of the closing of the transaction, we issued a promissory note to Regalia Holdings in the amount of $472,527.
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Said fee shall be calculated on the basis of a 360 day year.
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On February 27, 2025, we paid off the note in full. Regalia Ventures is owned and controlled by Jay B. Foreman, who serves as a member of our board of directors.
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The Credit Agreement provides for an early termination fee of 2% if we prepay or terminate Fifth Third’s commitment to make loans under the Credit Agreement two or more years prior to the maturity or 0.5% if such prepayment occurs less than two year prior to the maturity or during any renewal period.
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Stingray Group Share Repurchase On December 3, 2024, we entered into a stock repurchase agreement with Stingray Group, Inc., a Canadian corporation (the “Stingray Group”), pursuant to which we agreed to pay $285,714 to repurchase 5,495 shares of our common stock that Stingray Group had previously purchased from us on November 20, 2023.
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The obligations under the Credit Agreement are secured by all of our assets and the assets of SMC, presently owned or later acquired, and all cash and non-cash proceeds thereof (including, without limitation, insurance proceeds).
Added
We agreed to issue a promissory note to Stingray Group in the principal amount of the purchase price of the shares at the closing of the transaction. On February 18, 2025, the date of the closing of the transaction, we issued a promissory note to Stingray Group in the amount of $285,714.
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As of March 31, 2023, we were in default under the Credit Agreement due to non-compliance with the fixed charge coverage ratio covenant of 1:05 : 1.0. 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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

90 edited+232 added−92 removed11 unchanged
Biggest changeWE ARE SUBJECT TO THE COSTS AND RISKS OF CARRYING INVENTORY FOR OUR CUSTOMERS AND IF WE HAVE TOO MUCH INVENTORY, IT WILL AFFECT OUR CASH FLOW FOR OPERATIONS. Many of our customers place orders with us several months prior to the holiday season, but they schedule delivery two or three weeks before the holiday season begins.
Biggest changeMany of our customers place orders with us several months prior to the holiday season, but they schedule delivery two or three months before the holiday season begins. As such, we are subject to the risks and costs of carrying inventory during the time period between the placement of the order and the delivery date, which reduces our cash flow.
Our products are complex, and despite extensive testing, may contain defects or undetected errors or failures that may become apparent only after our products have been shipped to our customers or after product features or new versions are released.
Our products are complex and, despite extensive testing, may contain defects or undetected errors or failures that become apparent only after our products have been shipped to our customers or after product features or new versions are released.
If our suppliers do not have the proper licenses or rights or are not in compliance with all regulatory requirements, we may be named a party or be subject to claims, including claims of infringement or violating the intellectual property or proprietary rights of third parties with respect to our products.
If our suppliers do not have the proper licenses or rights or are not in compliance with all regulatory requirements, we may be named a party in disputes or be subject to claims, including claims of infringement or violating the intellectual property or proprietary rights of third parties, with respect to our products.
Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability for any: ● breach of their duty of loyalty to us or our stockholders; ● act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; ● unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or ● transaction from which the directors derived an improper personal benefit.
Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability for any: ● breach of their duty of loyalty to us or our stockholders; ● act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; ● unlawful payment of dividends or unlawful stock repurchases, or redemptions as provided in Section 174 of the Delaware General Corporation Law; or ● transaction from which the directors derived an improper personal benefit.
In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.
We cannot predict the nature, scope, or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.
IF WE SHIP PRODUCTS THAT CONTAIN DEFECTS, THE MARKET ACCEPTANCE OF OUR PRODUCTS AND OUR REPUTATION WILL BE HARMED AND OUR CUSTOMERS COULD SEEK TO RECOVER THEIR DAMAGES FROM US.
If we ship products that contain defects, the market acceptance of our karaoke products and our reputation will be harmed and our customers could seek to recover their damages from us.
Our ability to execute our business plan and to comply with regulatory requirements with respect to data control and data integrity depends, in part, on the continued and uninterrupted performance of our information technology systems, or IT systems. These systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters.
Our ability to execute our business plan and to comply with regulatory requirements with respect to data control and data integrity depends, in part, on the continued and uninterrupted performance of our IT systems. These systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters.
These products may compete with our products in jurisdictions where we do not have any issued or licensed patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.
These products may compete with our products in jurisdictions where we do not have any issued or licensed patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing. 16 Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.
We and our commercial partners operate in a number of jurisdictions that pose a high risk of potential FCPA violations and we participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the FCPA or local anti-corruption laws.
We and our commercial partners operate in several jurisdictions that pose a high risk of potential FCPA violations and we participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the FCPA or local anti-corruption laws.
We may not be able to attract and retain quality personnel on favorable terms, or at all.
We may not be able to afford, attract and retain quality personnel on favorable terms, or at all.
Our arrangements with these factories are subject to the risks of doing business abroad, such as import duties, trade restrictions, work stoppages, and foreign currency fluctuations, limitations on the repatriation of earnings and political instability, which could have an adverse impact on our margins. Furthermore, we have limited control over the manufacturing processes.
Our arrangements with these contract manufacturers are subject to the risks of doing business abroad, such as import duties, trade restrictions, work stoppages, and foreign currency fluctuations, limitations on the repatriation of earnings and political instability, which could have an adverse impact on our margins. Furthermore, we have limited control over the manufacturing processes.
Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in credit and capital markets. Additionally, Russia’s military interventions in Ukraine have led to sanctions and other penalties being levied by the U.S., European Union and other countries against Russia.
Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine has lead to market disruptions, including significant volatility in credit and capital markets. Russia’s military interventions in Ukraine have led to sanctions and other penalties being levied by the U.S., European Union and other countries against Russia.
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported.
U.S. and global markets are experiencing volatility and disruption as a result of the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported.
We are also subject to other laws and regulations governing our international operations, including regulations administered in the U.S. and in the EU, including applicable export control regulations, economic sanctions on countries and persons, customs requirements and currency exchange regulations (collectively, “Trade Control Laws”).
We are also subject to other laws and regulations governing our international operations, including regulations administered in the U.S. and in the EU, including applicable export control regulations, economic sanctions on countries and persons, customs requirements and currency exchange regulations.
Also, since we do not have written agreements with any of these factories, we are subject to additional uncertainty if the factories do not deliver products to us on a timely basis.
Also, since we do not have written agreements with any of these contract manufacturers, we are subject to additional uncertainty if the contract manufacturers do not deliver products to us on a timely basis.
Foreign Corrupt Practices Act (“FCPA”), and other anti-corruption laws that apply in countries where we do business. The FCPA and other anti-corruption laws generally prohibit us and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage.
Foreign Corrupt Practices Act (the “FCPA”) and other anti-corruption laws of the countries in which we do business. The FCPA and other anti-corruption laws generally prohibit us and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage.
As we expand our product development and marketing activities, we will need to hire additional personnel and could experience difficulties attracting and retaining qualified employees. Competition for qualified personnel could be intense due to the limited number of individuals who possess the skills and experience required by such industry.
We may have trouble hiring additional qualified personnel. As we expand our product development and marketing activities, we will need to hire additional personnel and could experience difficulties attracting and retaining qualified employees. Competition for qualified personnel could be intense due to the limited number of individuals who possess the skills and experience required by such an industry.
While we are not responsible to source raw materials, we rely on these suppliers to have all required licenses or proprietary rights to the materials that are incorporated into the final product. In addition, we rely on the representations of our contract manufacturers that they are using materials and components that meet all necessary legal, safety, and compliance requirements.
While we are not responsible for sourcing raw materials, we rely on these suppliers to have all required licenses and proprietary rights to the materials that are incorporated into our final products. In addition, we rely on the representations of our contract manufacturers that they are using materials and components that meet all necessary legal, safety, and compliance requirements.
Our growth and ability to meet customer demand depends in part on our capability to obtain timely deliveries of karaoke machines and our electronic products. We rely on third party suppliers to produce the parts and materials that are used to manufacture and produce these products.
Our growth and ability to meet customer demand depends in part on our ability to obtain timely deliveries of karaoke machines and our electronic products. We rely on third party suppliers to manufacture the parts and materials that are incorporated into these products.
We may need to hire a number of additional employees with public accounting and disclosure experience in order to meet our ongoing obligations as a public company, particularly if we become fully subject to Section 404 and its auditor attestation requirements, which will increase costs.
We may need to hire a number of additional employees with public accounting and disclosure experience in order to meet our ongoing obligations as a public company, particularly if we become fully subject to the Sarbanes-Oxley Act and its auditor attestation requirements, which will increase costs.
Any investigation of potential violations of the FCPA, other anti-corruption laws or Trade Control Laws by the United States, the European Union or other authorities could have an adverse impact on our reputation, our business, results of operations and financial condition.
Any investigation of potential violations of the FCPA or other laws and regulations by the United States, the European Union or other authorities could have an adverse impact on our reputation, our business, results of operations and financial condition.
Unfavorable global or regional economic conditions may be triggered by numerous developments beyond our control, including inflation, geopolitical events, health crises such as the COVID-19 pandemic, and other events that trigger economic volatility on a global or regional basis. Those types of unfavorable economic conditions could adversely affect our business and financial results.
High inflation and unfavorable economic conditions could negatively affect our business, financial condition and results of operations. Unfavorable global or regional economic conditions may be triggered by numerous developments beyond our control, including inflation, geopolitical events, health crises such as the COVID-19 pandemic, and other events that trigger economic volatility on a global or regional basis.
GENERAL RISK FACTORS OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY BE MATERIALLY ADVERSELY AFFECTED BY ANY NEGATIVE IMPACT ON THE GLOBAL ECONOMY AND CAPITAL MARKETS RESULTING FROM THE CONFLICT IN UKRAINE OR ANY OTHER GEOPOLITICAL TENSIONS.
Our business, financial condition and results of operations may be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine and the Middle East and other geopolitical tensions.
Any such defect, error or failure could result in failure of market acceptance of our products or damage to our reputation or relations with our customers, resulting in substantial costs for us and our customers as well as the cancellation of orders, warranty costs and product returns.
Any such defect, error or failure could result in reduced market acceptance of our products, damage to our reputation, or damage to our relations with our customers, resulting in the cancellation of orders, warranty costs and product returns.
As such, our internal computer systems and servers could fail or suffer security breaches, possibly resulting in a material disruption to our operations. The secure operation of our IT networks and systems as well as the secure processing and maintenance of information is critical to our operations and business strategy.
As such, we could experience a material disruption to our operations if our internal computer systems and servers fail or suffer security breaches. The secure operation of our information technology, or IT, systems and networks as well as the secure processing and maintenance of information is critical to our operations and business strategy.
In addition, the invasion of Ukraine and the resulting sanctions imposed on Russia have resulted in increased volatility in the financial markets and the markets for certain commodities including oil, which may significantly impact the manufacturers that we rely on, but is not expected to have any direct impact on us.
In addition, the invasion of Ukraine and the resulting sanctions imposed on Russia have resulted in increased volatility in the financial markets and the markets for certain commodities including oil, which may significantly impact the manufacturers that we rely on.
Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our IT systems, there are no assurances that electronic break-ins, computer viruses and similar disruptive problems, and/or sustained or repeated system failures or problems arising during the upgrade of any of our IT systems that interrupt our ability to generate and maintain data will not occur.
Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our IT systems, we may experience electronic break-ins, computer viruses, sustained or repeated system failures, or problems arising during the upgrade of any of our IT systems that interrupt our ability to generate and maintain data.
However, in the event our purchases are required to be made in Chinese local currency, the Yuan, we will be subject to the risks involved in foreign exchange rates. In the future the value of the Yuan may depend to a large extent on the Chinese government’s policies and China’s domestic and international economic and political developments.
If, in the future, our purchases are required to be made in Chinese local currency, the Yuan, we will be subject to the risks involved in foreign exchange rates. The value of the Yuan depends largely on the Chinese government’s policies and China’s domestic and international economic and political developments.
Although we maintain product liability insurance, it may not be adequate. 18 THE REQUIREMENTS OF BEING A PUBLIC COMPANY MAY STRAIN OUR RESOURCES, DIVERT MANAGEMENT’S ATTENTION AND AFFECT OUR ABILITY TO ATTRACT AND RETAIN QUALIFIED BOARD MEMBERS. We are a public company and subject to the reporting requirements of the Exchange Act, and the Sarbanes-Oxley Act of 2002.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members. We are a public company and subject to the reporting requirements of the Exchange Act, and the Sarbanes-Oxley Act of 2002.
If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial results and could result in an adverse opinion on internal controls from our independent auditors.
Any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. If we are unable to implement necessary changes effectively or efficiently, it could harm our operations, financial reporting or financial results and could result in an adverse opinion on internal controls from our independent auditors.
While we have not experienced any direct impact from the conflict in the Ukraine, the extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial and could adversely affect our operating results as they impact the global economy in the future.
Continued shipping line disruptions and delays may impact the availability and cost of shipping containers during peak shipping season. 19 While we have not experienced any direct impact from the conflicts in the Ukraine and the Middle East, the extent and duration of the military action, sanctions and resulting market and shipping lane disruptions are impossible to predict but could be substantial and could adversely affect our operating results as they impact the global economy in the future.
We sell our product to Canadian customers some of whom require us to invoice them in Canadian Dollars. We are subject to risks involved in the exchange rate between the Canadian and US dollar.
We also sell some of our karaoke products to Canadian customers, some of whom require us to invoice them in Canadian dollars. This subjects us to risks involved in the exchange rate between the Canadian and U.S. dollar.
Any of these difficulties could have a material adverse effect on our business, results of operations and financial condition. FAILURE OF OUR INFORMATION TECHNOLOGY SYSTEMS COULD SIGNIFICANTLY DISRUPT THE OPERATION OF OUR BUSINESS. Like any other business, we rely on e-mail and other digital communications methods as part of our normal operations.
The occurrence of any of these acts could have a material adverse effect on our business, financial condition and results of operations. 17 The failure of our information technology systems could significantly disrupt the operation of our business. We rely on information technology systems and networks as part of our business.
Our management team and other personnel will need to devote a substantial amount of time to new compliance initiatives and to meeting the obligations that are associated with being a public company, which may divert attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.
Our management team and other personnel will need to devote a substantial amount of time to new compliance initiatives and to meeting the obligations that are associated with being a public company, which may divert attention from other business concerns and have a material adverse effect on our business, financial condition and results of operations. 41 If we are not able to comply with the applicable continued listing requirements of the Nasdaq, it could delist us, which may adversely affect the market price and liquidity of our common stock.
Furthermore, should we be found not to be in compliance with the FCPA, other anti-corruption laws or Trade Control Laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, as well as the accompanying legal expenses, any of which could have a material adverse effect on our reputation and liquidity, as well as on our business, results of operations and financial condition. 17 IF SECURITIES ANALYSTS DO NOT PUBLISH RESEARCH OR REPORTS ABOUT OUR BUSINESS OR IF THEY PUBLISH NEGATIVE EVALUATIONS OF OUR STOCK, THE PRICE OF OUR COMMON STOCK COULD DECLINE.
Furthermore, should we be found not to be in compliance with the FCPA or other laws and regulations, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, as well as the accompanying legal expenses, any of which could have a material adverse effect on our business, financial condition and results of operations.
DOLLAR. The majority of our products are currently manufactured in China. During the fiscal year ended March 31, 2023, the Chinese local currency had no material effect on us as all of our purchases are denominated in U.S. currency.
During the year ended December 31, 2024 and the nine-month transition period ended December 31, 2023, the Chinese local currency had no material effect on us as all of our purchases are denominated in the U.S. dollar.
We do not have long-term contractual arrangements with any of our customers and they can cancel their orders at any time prior to delivery. A substantial reduction in or termination of orders from any of our largest customers would decrease our revenues and cash flow.
We do not have long-term contractual arrangements with any of our customers and they can cancel their orders at any time prior to delivery.
Many of our customers have demanded that we lower our prices and threatened to buy our competitor’s products. If we do not meet our customers’ demands to lower our regular prices, we will not sell as many karaoke products.
Many of our customers have demanded that we lower our prices to remain competitive with other companies offering karaoke products. If we do not meet our customers’ demands to lower our regular prices, we may not sell as many karaoke products.
These limitations of liability do not apply to liabilities arising under the federal or state securities laws and do not affect the availability of equitable remedies such as injunctive relief or rescission. Our bylaws provide that we will indemnify our directors, officers and employees to the fullest extent permitted by law.
These limitations of liability do not apply to liabilities arising under the federal or state securities laws and do not affect the availability of equitable remedies such as injunctive relief or rescission.
We believe that we will need to continue to enhance our karaoke machines and develop new machines to keep pace with competitive and technological developments and to achieve market acceptance for our products. At the same time, we need to identify and develop other products which may be different from karaoke machines.
We will need to continue to enhance our karaoke machines and develop new machines to keep pace with competitive and technological developments and to achieve market acceptance for our products.
If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, results of operations and financial condition. Our operations are subject to certain anti-corruption laws, including the U.S.
If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, financial condition, and results of operations. We can provide no assurance that we will be in full compliance with all applicable anticorruption laws, including the FCPA or other legal requirements.
We buy finished goods from our suppliers and generally do not source raw materials and parts for manufacturing and assembly into the final product. We rely on our contract manufacturers’ ability to secure injected plastic, wood cabinets, integrated circuits, display panels, speaker drivers, and other components that are necessary for assembly into our final products.
We rely on our contract manufacturers’ ability to secure injected plastic, wood cabinets, integrated circuits, display panels, speaker drivers, and other components that are necessary for the manufacture of our final products.
IF WE ARE UNABLE TO COMPETE IN THE KARAOKE PRODUCTS CATEGORY, OUR REVENUES AND NET PROFITABILITY WILL BE REDUCED. Our major competitors for karaoke machines and related products are Singsation®, Singtrix®, eKids®, Bonaok, Karaoke USA™, Ion® Audio, licensed property karaoke products and other consumer electronics companies.
Our major competitors for karaoke machines and related products are Singsation ® , Singtrix ® , eKids ® , Bonaok, Karaoke USA™, Ion ® Audio, licensed property karaoke product companies and other consumer electronics companies.
Our success will therefore be influenced by a number of economic factors affecting discretionary and consumer spending, such as employment levels, business, interest rates, and taxation rates, all of which are not under our control.
Our success will therefore be influenced by a number of economic factors affecting discretionary and consumer spending, such as employment levels, business, interest rates, and taxation rates, none which are under our control. Additionally, other extraordinary events such as terrorist attacks or military engagements could occur which may adversely affect the retail environment negatively impact consumer spending.
If our suppliers are unable to provide our factories with the parts and supplies, they we will be unable to produce our products. Currently there is a worldwide shortage of electronic chips due to the increased demand for semiconductors and we are currently competing with large companies to obtain these parts and could see production and shipment delays.
For example, there has been recent worldwide volatility in the supply of electronic chips due to the increased demand for semiconductors and we are currently competing with large companies to obtain these parts and could see production and shipment delays.
As a result, our products may not be competitive if we fail to introduce new products or product enhancements that meet evolving customer demands. The development of new products is complex, and we may not be able to complete development in a timely manner.
The development of new products is complex, and we may not be able to complete development in a timely manner.
If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock. 13 WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS THROUGHOUT THE WORLD. Filing, prosecuting and defending intellectual property rights on our products throughout the world is prohibitively expensive.
As a result, any such claim could have a material adverse effect on our business, financial condition and results of operations. We may not be able to protect our intellectual property rights throughout the world. Filing, prosecuting, and defending intellectual property rights on our products in international jurisdictions is prohibitively expensive.
Retailers that take delivery of our products in China rely on a variety of carriers to import those products. Any disruptions in shipping, whether in California or China, caused by labor strikes, other labor disputes, terrorism, and international incidents may prevent or delay our customers’ receipt of inventory.
Any disruptions in shipping, whether in California or China, caused by labor strikes, other labor disputes, terrorism, and international incidents may prevent or delay our customers’ receipt of our products. If our customers do not receive their products on a timely basis, they may cancel their orders or return the products to us.
These issues are common to all companies in the same type of business and if we are not able to negotiate lower costs, reduce other expenses, or pass on some or all of these price increases to our customers, our profit margin may be decreased.
If we are not able to negotiate lower costs, reduce other expenses, or pass on some or all of these costs to our customers, our profit margin may be adversely affected. If we are unable to compete in the karaoke products category, our revenue, cash flows and results of operations will be negatively impacted.
OUR BUSINESS IS SEASONAL AND THEREFORE OUR ANNUAL OPERATING RESULTS WILL DEPEND, IN LARGE PART, ON OUR SALES DURING THE RELATIVELY BRIEF HOLIDAY SEASON.
Our karaoke business is seasonal and therefore our annual operating results will depend, in large part, on our sales during the relatively brief holiday season. Sales of consumer electronics and toy products in the retail channel are highly seasonal, with a majority of retail sales occurring during the period of September through December in anticipation of the holiday season.
OUR PROFIT MARGIN MAY BE DECREASED DUE TO INCREASED PRICES OF RAW MATERIALS, SHIPPING COSTS AND COSTS ASSOCIATED WITH PRODUCTION. Fluctuation in the price of oil, electronic chip components and shipping costs have and will continue to affect us in connection with the sourcing and delivery of raw materials and services.
Fluctuations in the price of oil, electronic chip components and shipping costs have and will continue to affect the sourcing and delivery of the raw materials and services used in the manufacture and shipping of our karaoke products.
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business. RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK IF WE DO NOT CONTINUE TO SATISFY THE NASDAQ CAPITAL MARKET CONTINUED LISTING REQUIREMENTS, OUR COMMON STOCK COULD BE DELISTED FROM THE NASDAQ CAPITAL MARKET.
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
All of our goods are manufactured in China and are transported to customers and our warehouse in California via ocean vessel. As such, we are subject to damages that may occur to these goods when they are in transit to customers or our warehouse.
All of our karaoke products are manufactured in China and are transported to customers and our warehouse in California via ocean vessel. The risk of loss remains with us until the products are delivered. As a result, we are subject to the risk that these products could be damaged while they are in transit to customers or our warehouse.
ANY RETURN ON INVESTMENT MAY BE LIMITED TO THE VALUE OF OUR STOCK. We have never paid cash dividends on our stock and do not anticipate paying cash dividends on our stock in the foreseeable future.
These regulations may have the effect of limiting the trading activity of our common stock and reducing the liquidity of an investment in our common stock. We have never paid any dividends on our common stock and do not intend to pay any dividends on our common stock in the foreseeable future.
The karaoke industry is characterized by rapid technological change, frequent new product introductions and enhancements and ongoing customer demands for greater performance. In addition, the average selling price of any karaoke machine has historically decreased over its life, and we expect that trend to continue.
In addition, the average selling price of any karaoke machine has historically decreased over its life, and we expect that trend to continue. As a result, our products may not be competitive if we fail to introduce new products or product enhancements that meet evolving customer demands.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY CHANGES IN GOVERNMENT REGULATIONS RELATING TO INTERNATIONAL TARIFFS COULD SIGNIFICANTLY REDUCE OUR REVENUES, PRODUCT COST AND PROFITABILITY. U.S. government administration and members of the U.S.
Changes in government regulations relating to international tariffs could significantly reduce our revenues, product cost and profitability. U.S. government administration and members of the U.S. Congress have recently implemented significant changes in U.S. trade policy and taken certain actions that are impacting our business, including imposing tariffs on certain goods imported into the United States.
Our bylaws also provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding. We believe that these provisions are necessary to attract and retain qualified persons as directors and officers.
Our certificate of incorporation and bylaws provide that we will indemnify our officers and directors to the fullest extent permitted by law and that we will advance expenses incurred by any such persons in advance of the final disposition of any action or proceeding.
The primary reason for the 5.2% increase in returns was due to an increase in overstock returns from one major customer. Our factories charge customary repair and freight costs, which increase our expenses and reduce profitability. If any of our customers were to increase the volume of their returned karaoke products to us, it would reduce our revenues and profitability.
In addition, the factories that we utilize for the manufacture of our products charge customary repair and freight costs, which increase our expenses and reduce our cash flow. If any of our customers increase the volume of their returned karaoke products to us, our revenue and cash flow would be negatively impacted.
We have obtained insurance coverage for goods that are shipped direct import to our customers whose shipping terms are FOB shipping point and for goods in transit to our California warehouse however, certain exclusions have been added that may prevent insurance coverage of certain damaged incidents in the future.
While we have taken significant measures to reduce the likelihood of our products being damaged, we cannot guarantee that our products won’t be damaged in the future. We have obtained insurance coverage for products that are shipped direct import to our customers and for goods in transit to our California warehouse.
In addition, we must compete with all the other existing forms of entertainment including, but not limited to: motion pictures, video arcade games, home video games, theme parks, nightclubs, television, prerecorded tapes, CD’s, and DVD’s and streaming video. HIGH INFLATION AND UNFAVORABLE ECONOMIC CONDITIONS COULD NEGATIVELY AFFECT OUR OPERATIONS AND RESULTS.
In addition, we compete with companies offering other forms of entertainment, including motion pictures, video arcade games, home video games, theme parks, nightclubs, television, prerecorded tapes, CDs, DVDs and streaming video.
Because of our reliance on manufacturers in China for our machine production, our production lead times range from one to four months. Therefore, we must commit to production in advance of customers’ orders. It is difficult to forecast customer demand because we do not have any scientific or quantitative method to predict this demand.
If we do not accurately forecast the demand for our karaoke products, our revenue, cash flow and results of operations will be adversely affected. Our production lead times range from one to four months due to our reliance on manufacturers in China for the production of our karaoke products. Therefore, we must commit to production in advance of customers’ orders.
The limitation of liability in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might provide a benefit to us and our stockholders.
We believe that these provisions are necessary to attract and retain qualified persons as officers and directors. The limitation of liability in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duties.
WE ARE SUBJECT TO PRESSURE FROM OUR CUSTOMERS RELATING TO PRICE REDUCTION AND FINANCIAL INCENTIVES AND IF WE ARE PRESSURED TO MAKE THESE CONCESSIONS TO OUR CUSTOMERS, IT WILL REDUCE OUR REVENUES AND PROFITABILITY. Because there is intense competition in the karaoke industry, we are subject to pricing pressure from our customers.
We are subject to pressure from our customers relating to price reduction and financial incentives that negatively impact our revenue and cash flow from sales of our karaoke products. We are subject to pricing pressure from our customers due to intense competition in the karaoke industry.
However, the exchange rate has been stable during our fiscal year ended March 31, 2023 and the associated exchange rates did not have a material impact on our financial results. Should the exchange rate between the Canadian and US Dollar become more volatile and sales to Canadian customers increase, there could be a material adverse effect on our business.
The exchange rate has been stable during the year ended December 31, 2024 and the nine-month transition period ended December 31, 2023, and the associated exchange rates did not have a material impact on our financial results.
The occurrence of any of the foregoing with respect to our IT systems could have a material adverse effect on our business, results of operations or financial condition. WE ARE SUBJECT TO VARIOUS CLAIMS AND LEGAL ACTIONS ARISING IN THE ORDINARY COURSE OF OUR BUSINESS.
The occurrence of any such events in the future could cause substantial damage to our business and subject us to substantial repair costs that could have a material adverse effect on our business, financial condition and results of operations.
Any changes in U.S. trade policy could trigger retaliatory actions by affected countries, resulting in “trade wars,” and increased costs for goods imported into the United States. All of our products are manufactured and imported from China. However, only our microphone products are currently subject to 7.5% tariffs currently in place.
Some of these changes have triggered retaliatory actions by affected countries and may result in “trade wars” and increased costs for goods imported into the United States. All of our products are manufactured and imported from China and we sell our products in Canada and other countries.
Should substantial damage incur while goods are in transit, we could experience a significant loss of revenue, inventory and incur significant out of pocket expenses associated with destruction of the damaged goods, which could cause a significant loss from operations and reduction in cash flow.
Notwithstanding this, certain exclusions apply that may prevent insurance from covering a loss. In the event our products are damaged while in transit in the future, we could experience a significant loss of revenue and inventory and incur significant out-of-pocket expenses, all of which would have a negative impact on our cash flow and results of operations.
WE ARE EXPOSED TO THE CREDIT RISK OF OUR CUSTOMERS, WHO ARE EXPERIENCING FINANCIAL DIFFICULTIES, AND IF THESE CUSTOMERS ARE UNABLE TO PAY US, OUR REVENUES AND PROFITABILITY WILL BE REDUCED. We sell products to retailers, including national chains, warehouse clubs, department stores, lifestyle merchants, specialty stores, and direct mail catalogs and showrooms.
We sell products to retailers, including national chains, warehouse clubs, department stores, lifestyle merchants, specialty stores, and direct mail catalogs and showrooms. Deterioration in the financial condition of our customers could result in these customers not being able to pay us for our products and services. This would have a negative impact on our revenue and results of operations.
If we are unable to sell excess inventory in the future at historical or greater margins, our cash flow for operations will be negatively impacted. WE ARE SUBJECT TO INSURANCE RISK OF LOSS FOR GOODS DAMAGED WHILE IN TRANSIT FROM THE MANUFACTURER TO THE CUSTOMER AND OUR WAREHOUSE.
If we are forced to maintain excessive inventory levels in the future, we may incur higher storage costs which will have a material adverse effect on our cash flow and results of operations. 27 We are subject to insurance risk of loss for karaoke products that are damaged while in transit from the manufacturer to the customer and our warehouse.
Our results of operations and financial condition may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. IF OUR ACCOUNTING CONTROLS AND PROCEDURES ARE CIRCUMVENTED OR OTHERWISE FAIL TO ACHIEVE THEIR INTENDED PURPOSES, OUR BUSINESS COULD BE SERIOUSLY HARMED.
It may also reduce the likelihood of derivative litigation being brought against our officers and directors even though an action, if successful, might provide a benefit to us and our stockholders. Our results of operations and financial condition may be harmed to the extent we pay the costs of settlement and damage awards pursuant to these indemnification provisions.
WE DEPEND ON THE ABILITY OF OUR SUPPLIERS TO MANUFACTURE OUR PRODUCTS WITHOUT INFRINGING, MISAPPROPRIATING OF OTHERWISE VIOLATING THE INTELLECTUAL PROPERTY OF PROPRIETARY RIGHTS OF OTHERS IN MANUFACTURING OUR PRODUCTS. We source our products from a variety of contract manufacturers.
If we are unable to anticipate and address any shortages of parts and materials in the future, we may experience manufacturing and delivery delays, which would negatively impact our sales and business. 25 We depend on the ability of our suppliers to manufacture our products without infringing, misappropriating or otherwise violating the intellectual property rights or proprietary rights of others.
We cannot guarantee that we will be able to purchase the parts we need at reasonable prices or in a timely fashion. If we are unable to anticipate any shortages of parts and materials in the future, we may experience severe production problems and delivery delays, which would impact our sales.
We cannot guarantee that we will be able to purchase the components we need at reasonable prices or in a timely fashion.
OUR PRODUCTS ARE SHIPPED FROM CHINA AND ANY DISRUPTION OF SHIPPING COULD PREVENT OR DELAY OUR CUSTOMERS’ RECEIPT OF INVENTORY. We rely principally on four contract ocean carriers to ship substantially all of the products that we import to our warehouse facility in Ontario, California.
We rely principally on a limited number of contract ocean carriers to ship substantially all of our karaoke products that we import to our outsourced warehouse facility in Chino, California. Retailers that take delivery of our products in China rely on a variety of carriers to import those products.
Sales in our second and third quarter, combined, accounted for approximately 62% and 81% of net sales in our fiscal years ended March 31, 2023 and, 2022, respectively. CONSUMER DISCRETIONARY SPENDING MAY AFFECT KARAOKE PURCHASES AND IS AFFECTED BY VARIOUS ECONOMIC CONDITIONS AND CHANGES. Purchases of karaoke machines and music are considered discretionary for consumers.
In the event we fail to generate sufficient sales of our products during this period in future years, our revenue and results of operations will be negatively adversely affected. Consumer discretionary spending may affect karaoke purchases and is affected by various economic conditions and changes. Purchases of karaoke machines and music are considered discretionary for consumers.
Stock markets, in general, have experienced, and continue to experience, significant price and volume volatility, and the market price of our common stock may continue to be subject to similar market fluctuations unrelated to our operating performance or prospects.
Our common stock has experienced, and is likely to experience, significant price and volume fluctuations in the future which could adversely affect the market prices of our common stock without regard to our operating performance.
The listing of our common stock on the Nasdaq Capital Market is contingent on our compliance with the Nasdaq Capital Market’s conditions for continued listing. While we are currently in compliance with Nasdaq listing requirements, if we were to fail to meet a Nasdaq Capital Market listing requirement, we may be subject to delisting by the Nasdaq Capital Market.
If we were unable to meet the continued listing of the Nasdaq, our common stock could be subject to delisting.
Our forecasting is based on management’s general expectations about customer demand, the general strength of the retail market and management’s historical experiences. In past years we have overestimated demand for our products which led to excess inventory in some of our products and caused liquidity problems that adversely affected our revenues, net income and cash flow.
In past years we have overestimated demand for our products, which led to excess inventory in some of our products. In the event we fail to accurately forecast demand for our karaoke products in the future, our revenue, cash flow and results of operations will be adversely affected.
We are also subject to pressure from our customers regarding certain financial incentives, such as return credits or large cooperative (“co-op”) promotion incentives, which effectively reduce our net sales and profit. We gave co-op promotion incentives of approximately $2.3 million during our fiscal year ended March 31, 2023 and $1.7 million during our fiscal year ended March 31, 2022.
Additionally, we are also subject to pressure from our customers regarding certain financial incentives, such as return credits or large cooperative promotion incentives, which effectively reduce our revenue and cash flow. We have historically offered these co-op promotion incentives to our customers because it is standard practice in the retail industry.
Our customers returned goods valued at approximately $5.0 million or 12.7% of our net sales in our fiscal year ended March 31, 2023 and approximately $3.6 million or 7.5% of our net sales in our fiscal year ended March 31, 2022. The return of products is due to a variety of reasons including defective units, customers’ overstock and buyer’s remorse.
We incur significant product returns from our customers and expect to incur additional returns in the returns. The return of products is due to a variety of reasons, including defective units, customers’ overstock and buyer’s remorse.
If we are unable to mitigate these increased costs through price increases we could experience reductions in revenues, gross profit margin and results from operations. A SMALL NUMBER OF OUR CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR REVENUES, AND THE LOSS OF ONE OR MORE OF THESE KEY CUSTOMERS COULD SIGNIFICANTLY REDUCE OUR REVENUES AND CASH FLOW.
A small number of our customers account for a substantial portion of the revenue we generate from our karaoke business and the loss of one or more of these key customers would negatively impact our revenue and cash flow. We rely on a few large customers to provide for a substantial portion of our revenue.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES We entered into an operating lease agreement, effective October 1, 2017, for our corporate headquarters located in Fort Lauderdale, Florida where we lease approximately 6,500 square feet of office space. The lease expires on March 31, 2024. The base rent payment is approximately $9,950 per month, subject to annual adjustments.
Biggest changeItem 2. Properties. We lease 6,500 square feet of office space in Fort Lauderdale, Florida for our corporate headquarters. We also lease 1,890 square feet of office space in Hong Kong for our operations there. We believe that each of these locations is adequate to support our operations for the next 12 months.
We believe that our facilities are well maintained, in substantial compliance with environmental laws and regulations, and adequately covered by insurance. We also believe that these leased facilities are not unique and could be replaced, if necessary, at the end of the term of the existing leases.
We also believe that these facilities are not unique and could be replaced, if necessary, at the end of the term of the existing leases. 45
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We entered into an operating lease agreement, effective June 1, 2013, for 86,000 square feet of warehouse space in Ontario, California for our logistics operations. On June 15, 2020, we executed a three-year lease extension which will expire on August 31, 2023.
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We do not intend to renew the lease agreement and have signed a service agreement with a third-party logistics company to provide domestic and Canadian warehousing services, effective September 1, 2023. The base rent payment is approximately $69,300 for the remaining term of the lease.
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We entered into an operating lease agreement, effective October 15, 2022, for our administrative office located in Hong Kong where we lease approximately 1,890 square feet of office space. The lease expires on October 14, 2025. The base rent payment is approximately $4,900 per month for the entire term of the lease.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDividends We have never declared or paid cash dividends on our common stock. Our Board of Directors intends to continue its policy for the foreseeable future. Future dividend policy will depend upon our earnings, financial condition, contractual restrictions and other factors considered relevant by our Board of Directors and will be subject to limitations imposed under Delaware law.
Biggest changeFuture dividend policy will depend upon our earnings, financial condition, contractual restrictions and other factors considered relevant by our board of directors and will be subject to limitations imposed under Delaware law. Recent Sales of Unregistered Securities None.
This number does not include: ● any beneficial owners of common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries, or ● broker-dealers or other participants who hold or clear shares directly or indirectly through the Depository Trust Company, or its nominee, Cede & Co.
This number does not include: (i) any beneficial owners of common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries, or (ii) broker-dealers or other participants who hold or clear shares directly or indirectly through the Depository Trust Company or its nominee, Cede & Co.
Recent Sales of Unregistered Securities None. Equity Compensation Information The information required by this item regarding equity compensation plans is incorporated by reference to the information set forth in Item 12 of this Annual Report on Form 10-K. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. ITEM 6. [RESERVED]
Equity Compensation Information The information required by this item regarding equity compensation plans is incorporated by reference to the information set forth in Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters of this report. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 6. [Reserved]. 47 Item 7.
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed on the Nasdaq Capital Markets under the symbol “MICS.” Prior to May 23, 2022, our common stock traded on the OTC Markets, Inc.’s OTCQX under the symbol “SMDM.” Record Holders As of July 12, 2023, based upon information received from our transfer agent, there were approximately 194 record holders of our outstanding common stock.
Item 5. Market For Registrant’s Common Equity And Related Stockholder Matters And Issuer Purchases Of Equity Securities. Market Information Our common stock is listed on the Nasdaq under the trading symbol “RIME.” Record Holders As of April 14, 2025, based upon information received from our transfer agent, there were 83 record holders of our outstanding common stock.
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Dividends We have not paid any dividends on our common stock to date, nor do we intend to pay any dividends on our common stock in the foreseeable future. We intend to retain future earnings, if any, to finance the growth of our business.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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.
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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 statements.
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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.
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The following should be read in conjunction with our consolidated financial statements beginning on page F-1 of this report. Overview We are an 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, LLC.
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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. SemiCab SemiCab is a cloud-based Collaborative Transportation Platform built to achieve the scalability required to predict and optimize loads and the use of trucks.
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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. Since 2020, SemiCab has enabled major retailers, brands and transportation providers to address their transportation needs.
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SemiCab’s 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.
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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.
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Trucking optimization could also reduce carbon emissions attributable to road freight. Singing Machine Through Singing Machine, we engage in the development, marketing, and sale of consumer karaoke audio equipment, accessories, and musical recordings.
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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.
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Our products are among the most widely available karaoke products internationally. 48 Our 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.
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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. Recent Corporate Events Change in Fiscal Year During 2023, our board of directors approved a change in our fiscal year end from March 31 to December 31.
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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.
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As 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 31, 2023.
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Name and Symbol Change Effective 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” to “RIME.” Reverse Stock Split and Increase in Authorized Shares On 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.
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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. The reverse stock split took effect on February 10, 2025.
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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. Strategy Our SemiCab and Singing Machine businesses are each in very different stages of development.
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Accordingly, our plans for growing each of them are very different. 49 SemiCab 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.
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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. While SemiCab is a nascent business, it has already acquired some multinational consumer products companies as customers.
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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.
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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. We acquired the United States component of our SemiCab business on July 3, 2024.
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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.
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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.
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We are actively evaluating additional opportunities to expand our SemiCab business through investments in complementary AI logistics and distribution businesses and companies. In 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.
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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.
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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.
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We may also explore entering new markets that may offer more profitable avenues for our products. Financial Results We 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.
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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 Target.
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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.
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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.
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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.
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As a result, we incurred a loss from operations of $13,925,000 during the year ended December 31, 2024.
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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.
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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, 2023. 50 The 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.
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We 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.
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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.
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We 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.
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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.
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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.
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Outlook 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.
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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. As a result, total net sales are expected to increase over the next 12 months.
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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.
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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.
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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.
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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.
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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 generate. 51 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.
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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.
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Critical Accounting Estimates This 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”).
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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.
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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.
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The 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.
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Reserve for Sales Returns and Returns Asset While 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.
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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.
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The net realizable value of these estimated returns is classified as return assets as part of current assets on the accompanying consolidated financial statements. 52 Inventory Inventory 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.
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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.
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Management regularly reviews our investment in inventories for such declines in value. Warrant Liability We 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.
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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 results.
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Recent Accounting Pronouncements In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023- 07, Segment Reporting (Topic 280): Improvements 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.
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The 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 segment.
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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. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures .
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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.
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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. In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) .
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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.
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We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures. In November 2024, the FASB issued ASU 2024-04, Debt – Debt with Conversion and Other Options (Subtopic 470-20) . This ASU clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion.
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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. Adoption can be on a prospective or retrospective basis.
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We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.
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We 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. 53 Comparison of the Year Ended December 31, 2024 and the Nine-Month Transition Period Ended December 31, 2023 Net Sales Net sales consist primarily of sales of our Singing Machine karaoke products.
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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.
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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.
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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.
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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 months.
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Cost of Goods Sold Cost of goods sold consists primarily of costs for raw materials and the manufacturing of our Singing Machine karaoke products. We incurred only a minimal amount of costs in connection with our SemiCab business.
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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, 2023. The decrease in cost of goods sold was due primarily to a decrease of $3,553,000 for product manufacturing costs.
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Our decrease 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.
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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 China.

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Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The 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.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and in our consolidated financial statements beginning on page F-1 of this report. (2) On September 5, 2024, Messrs.
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The 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.
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Turner, Cragun and Nisser resigned from our board of directors. 70 We compensate the members of our board of directors as follows: ● An annual cash payment of $15,000 for each completed full year of service or prorated for a partial year. ● An annual stock grant of stock equivalent in value to $10,000 for each completed full year of service or prorated for a partial year.
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This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties.
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The stock price at grant will be determined at the closing price on the day of the annual stockholder meeting. ● A $1,000 fee for each board meeting and annual meeting attended.
Removed
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.
Added
Committee meetings and telephone board meetings will be compensated for with a $500 fee. ● All expenses are reimbursed for attending board, committee and annual meetings or when their presence at a location away from home is requested. 401(k) Plan Effective January 1, 2001, we adopted a voluntary 401(k) plan.
Removed
See also the section captioned “Disclosure on Forward-Looking Statements” in this report. Overview We are primarily engaged in the development, marketing, and sale of consumer karaoke audio equipment, accessories and musical recordings.
Added
All employees with at least 90 days of service are eligible to participate in our 401(k) plan. We make a matching contribution of 100% of the first three percent of salary deferral contributions, plus 50% of the next two percent of salary deferral contributions, for each payroll period. The matching contributions that we make are vested in full immediately.
Removed
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 world.
Added
Policies and Practices related to the Grant of Certain Equity Awards Close in Time to the Release of Material Nonpublic Information We have a strict policy of not granting securities to our executive officers, directors and employees when material nonpublic information is known or a material transaction is anticipated to occur.
Removed
Our mission is to “create joy through music.” In order to deliver on this mission, we are focused on the following multi-prong approach: ● In the short-term, improve profitability by optimizing operations and continue to expand gross margins; and ● In 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. 20 Results of Operations for the Fiscal Year Ended March 31, 2023 Compared With Fiscal Year Ended March 31, 2022 The following table sets forth, for the periods indicated, certain income and expense items expressed as a percentage of our total revenues: For the Fiscal Years Ended March 31, 2023 March 31, 2022 Net Sales 100.0 % 100.0 % Cost of Sales 76.6 % 77.2 % Operating Expenses 32.8 % 22.7 % Operating (Loss) Income -9.4 % 0.1 % Other Income, Net 0.2 % 0.4 % (Loss) Income Before Income Tax Provision -9.2 % 0.5 % Income Tax Provision -2.6 % -0.1 % Net (Loss) Income -11.8 % 0.4 % Net Sales Net sales for the year ended March 31, 2023 (“Fiscal 2023”) were approximately $39.3 million.
Added
The timing of equity award grants is determined with consideration to a variety of factors, including but not limited to, the achievement of pre-established performance targets, market conditions and internal milestones. We do not follow a predetermined schedule for the granting of equity awards.
Removed
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.
Added
Instead, each grant is considered on a case-by-case basis to align with our strategic objectives and to ensure the competitiveness of our compensation packages. In determining the timing and terms of an equity award, our board of directors and compensation committee consider material nonpublic information to ensure that such grants are made in compliance with applicable laws and regulations.
Removed
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.
Added
Procedures utilized by our board of directors and compensation committee to prevent the improper use of material nonpublic information in connection with the granting of equity awards include consultation with legal counsel and, where appropriate, the delay of the grant of applicable equity awards until the public disclosure of such material nonpublic information has been completed.
Removed
Most 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.
Added
We are committed to maintaining transparency in its executive compensation practices and to making equity awards in a manner that is not influenced by the timing of the disclosure of material nonpublic information for the purpose of affecting the value of executive compensation.
Removed
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.
Added
We regularly review our policies and practices related to equity awards to ensure that they meet the evolving standards of corporate governance and continue to serve the best interests of us and our stockholders.
Removed
Gross Profit Gross 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.
Added
During the year ended December 31, 2024, no securities were granted to our named executive officers within four business days prior to, or one business day following, the filing or furnishing of a periodic or current report by us that disclosed material nonpublic information. 71
Removed
Gross 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.
Removed
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.
Removed
Operating Expenses During 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.
Removed
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.
Removed
General 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.
Removed
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.
Removed
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.
Removed
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.
Removed
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. 21 Other Income (Expenses) Other 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.
Removed
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.
Removed
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.
Removed
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.
Removed
These increases in other income were offset by interest expense of approximately $0.5 million during the fiscal year ended March 31, 2022. (Loss) Income Before Income Tax (Provision) We 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.
Removed
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.
Removed
Income Tax Provision Significant 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.
Removed
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.
Removed
On March 31, 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.
Removed
In 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.
Removed
We 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.
Removed
Net (Loss) Income As 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.
Removed
Liquidity And Capital Resources On 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 31, 2022.
Removed
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.
Removed
During the next twelve-month period, we plan on financing our working capital needs primarily from: 1) 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.
Removed
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; and 2) 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.
Removed
As of the date of the filing of this Annual Report, there was approximately $1.8 million available to borrow on the revolving Credit Facility. As of March 31, 2023, we were in default under the Credit Agreement due to non-compliance with the fixed charge coverage ratio covenant of 1:05 : 1.0.
Removed
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.
Removed
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.
Removed
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. 22 We 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.
Removed
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.
Removed
Cash 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.
Removed
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. Cash used in operating activities in Fiscal 2022 was approximately $2.0 million.
Removed
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.
Removed
There was an increase in accounts receivable of approximately $0.6 million due to later than usual shipments due to global logistics issues.
Removed
These 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.
Removed
Cash 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. Net 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.
Removed
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.
Removed
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.
Removed
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.
Removed
Net 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.
Removed
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.
Removed
In 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”).
Removed
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.
Removed
In August 2021, we entered into the Redemption Agreement with koncepts and Treasure Green, pursuant to which we acquired the 654,105 Redeemed Shares.
Removed
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 Green. The Redeemed Shares were retired and returned as unissued authorized capital.
Removed
For 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.
Removed
Exchange Rates We 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.
Removed
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.
Removed
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).
Removed
The 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. dollar. The exchange rate of the MOP to the U.S. dollar is approximately MOP $8.00 to U.S. $1.00.
Removed
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. 23 Seasonal 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 fiscal year.
Removed
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. Our results of operations may also fluctuate from quarter to quarter as a result of the amount and timing of orders placed and shipped to customers.
Removed
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.
Removed
During 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.
Removed
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.
Removed
Critical Accounting Policies and Estimates We 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 available.
Removed
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.

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