The Singing Machine Company, Inc. (“Singing Machine”) (NASDAQ: MICS) – the worldwide leader in consumer karaoke products, today announced its results of operations for the nine-month period ended December 31, 2023. The Company has historically reported on a March 31 fiscal year end and transitioned to a December 31 fiscal year end with the Transition Period Annual Report released today.

“We are pleased to provide a comprehensive update on the Company’s financial results of operations,” commented Gary Atkinson, CEO of the Singing Machine. “Overall, we saw a broadly weakened retail environment for much of 2023, with the Christmas retail season being marginally improved relative to the 2022 season. The backdrop of a potential recession, inflation and high interest rates played a large role in overall retail sentiment.”

“Despite these headwinds, we saw a number of positive developments. We saw increased demand for our higher-end products, particularly our WiFi enabled products that sold very well. We also saw music subscription sales increase 35% year over year. We saw real strength in our best, highest-margin offerings, and this is where we intend to drive growth and profitability in the future.”

“We see the karaoke market further separating into two very distinct sub-markets. First, there are the competitors that deliver technology-enabled, sophisticated products that command a higher average sales price. Then there are the more promotional, less-proprietary offerings that are price-driven. We are systematically driving our product mix towards the higher-end, higher-margin end of this spectrum.”

“Together with our strategic partners at Stingray, we are focused on driving consumers to a best-in-class product, coupled with an industry-leading content app. Our newest version app has been rebuilt from the ground-up to support direct integration into our karaoke devices, automotive infotainment systems, and smart TVs. Our goal is to leverage Stingray’s world-wide, industry-leading digital music library to extend our karaoke hardware into more devices and more applications. Our consumer strategy remains to leverage strong product placement through our retail partners with a recurring revenue model that leverages our brand, our market share, and our technology going forward,” concluded Mr. Atkinson.

Results of operations are summarized as follows:

  • Revenues: Net sales for the nine-month transition period ended December 31, 2023 were approximately $29.2 million, representing a decrease of approximately $6.7 million (18.7%) from approximately $35.9 million for the same period in 2022 (unaudited).
    • We experienced a decrease in net sales to four of our five major customers in the Transition Period in 2023 as compared to the same period in 2022 (unaudited). The two largest single declines in sales by customer were Amazon and Sam’s Club. Sam’s Club elected to reduce the number of products it carried during the Christmas retail season, whereas Amazon experienced across the board decreases in all product lines.
    • Among the Company’s top 5 accounts, only Costco experienced significant growth, which was primarily attributable to approximately $3.0 million in new business from new business with Costco Canada.
  • Gross Profits: Gross profit for the Transition Period in 2023 was approximately $6.2 million, or 21.2% of net sales, compared to approximately $8.4 million, or 23.5% of sales for the same period in 2022 (unaudited). This represented a decrease of approximately $2.2 million or 26.6%.
    • The overall decrease in net sales accounted for approximately $1.6 million of the decrease.
    • The remaining decrease in gross profit margins was the result of a 2.3% percentage point decrease in gross margins.
    • The decrease was entirely due to an approximate $1.8 million non-cash impairment to inventory recorded during the Transition Period in 2023.
    • Excluding the negative impact of this impairment, gross margins improved to 27.4% for the nine-month period ended December 31, 2023, as compared to 23.5% for the same period in the prior year (unaudited).
    • This improvement was largely attributable to the increase in higher margin sales of newer streaming technology karaoke machines as percentage of total sales.
  • Operating Expenses: Total operating expenses were approximately $12.3 million for the nine-months ended December 31, 2023, as compared to approximately $10.0 million for the same period in the prior year.
    • The approximately $2.3 million increase was primarily due to $0.9 million in increased advertising expenses paid during the period. The Company took a more aggressive approach to direct-to-consumer marketing in anticipation of a challenging retail environment.
    • The remaining $1.4 million increase in operating expenses was almost entirely attributable to one-time, non-recurring expenses. First, the Company spent $0.9 million on the launch of its hospitality concept, which has been discontinued. The Company also incurred $0.4 million in expenses related to the closure and outsourcing of its logistics operations formerly in Ontario, CA. Lastly, the Company also incurred $0.2 million in one-time accounting expenses and $0.2 million in one-time advertising expenses with its former parent, Ault Alliance.
    • Excluding the expenses detailed above, all other operating costs decreased $0.2 for the nine-months ended December 31, 2023 due to strict cost control measures.
  • Net Income: The Company reported a net loss of $6. 4 million for the nine months ended December 31, 2024, as compared to a net loss of $1.7 million for the same period in the prior year.

About The Singing Machine

The Singing Machine Company, Inc. is the worldwide leader in consumer karaoke products. Based in Fort Lauderdale, Florida, and founded over forty years ago, the Company designs and distributes the industry's widest assortment of at-home and in-car karaoke entertainment products. Their portfolio is marketed under both proprietary brands and popular licenses, including Carpool Karaoke and Sesame Street. Singing Machine products incorporate the latest technology and provide access to over 100,000 songs for streaming through its mobile app and select WiFi-capable products and is also developing the world’s first globally available, fully integrated in-car karaoke system. The Company also has a new philanthropic initiative, CARE-eoke by Singing Machine, to focus on the social impact of karaoke for children and adults of all ages who would benefit from singing. Their products are sold in over 25,000 locations worldwide, including Amazon, Costco, Sam’s Club, Target, and Walmart. To learn more, go to www.singingmachine.com.

Investor Relations Contact:investors@singingmachine.comwww.singingmachine.comwww.singingmachine.com/investors

The Singing Machine Company, Inc. and SubsidiariesCONSOLIDATED BALANCE SHEETS

    December 31, 2023     March 31, 2023  
             
Assets                
Current Assets                
Cash   $ 6,703,000     $ 2,895,000  
Accounts receivable, net of allowances of $174,000 and $166,000, respectively     7,308,000       2,075,000  
Accounts receivable related parties     269,000       239,000  
                 
Inventory     6,871,000       9,085,000  
Returns asset     1,919,000       555,000  
Prepaid expenses and other current assets     136,000       351,000  
Total Current Assets     23,206,000       15,200,000  
                 
Property and equipment, net     404,000       633,000  
Operating leases - right of use assets     3,926,000       561,000  
Other non-current assets     179,000       255,000  
Total Assets   $ 27,715,000     $ 16,649,000  
                 
Liabilities and Shareholders’ Equity                
Current Liabilities                
Accounts payable   $ 7,616,000     $ 1,769,000  
Accrued expenses     2,614,000       2,266,000  
Refund due to customer     1,743,000       -  
Customer prepayments     687,000       583,000  
Reserve for sales returns     3,390,000       900,000  
Other current liabilities     75,000       99,000  
Current portion of operating lease liabilities     84,000       509,000  
Total Current Liabilities     16,209,000       6,126,000  
                 
Other liabilities, net of current portion     3,000       104,000  
Operating lease liabilities, net of current portion     3,925,000       88,000  
Total Liabilities     20,137,000       6,318,000  
                 
Commitments and Contingencies                
                 
Shareholders’ Equity                
Preferred stock, $1.00 par value; 1,000,000 shares authorized; no shares issued and outstanding     -       -  
Common stock $0.01 par value; 100,000,000 shares authorized; 6,418,061 issued and outstanding at December 31, 2023 and 3,184,439 issued and 3,167,489 outstanding at March 31, 2023     64,000       32,000  
Additional paid-in capital     33,429,000       29,822,000  
Subscriptions receivable     -       (6,000 )
Accumulated deficit     (25,915,000 )     (19,517,000 )
Total Shareholders’ Equity     7,578,000       10,331,000  
Total Liabilities and Shareholders’ Equity   $ 27,715,000     $ 16,649,000  

The Singing Machine Company, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF OPERATIONS

    Nine Months Ended     Years Ended  
    December 31, 2023     March 31, 2023     March 31, 2022  
                   
Net Sales   $ 29,198,000     $ 39,299,000     $ 47,512,000  
                         
Cost of Goods Sold     23,008,000       30,090,000       36,697,000  
                         
Gross Profit     6,190,000       9,209,000       10,815,000  
                         
Operating Expenses                        
Selling expenses     3,717,000       3,442,000       3,589,000  
General and administrative expenses     8,616,000       9,465,000       7,157,000  
Total Operating Expenses     12,333,000       12,907,000       10,746,000  
                         
(Loss) Income from Operations     (6,143,000 )     (3,698,000 )     69,000  
                         
Other (Expenses) Income                        
Gain on disposal of fixed assets     44,000       -       -  
Gain - related party     -       -       11,000  
Gain from extinguishment of PPP loan forgiveness     -       -       448,000  
Gain from Employee Retension Credit Program refund     -       704,000       -  
Gain from settlement of accounts payable     -       48,000       339,000  
Loss from extinguishment of debt     -       (183,000 )     -  
Interest expense     (299,000 )     (479,000 )     (580,000 )
Total Other (Expenses) Income, net     (255,000 )     90,000       218,000  
                         
(Loss) Income Before Income Tax Benefit     (6,398,000 )     (3,608,000 )     287,000  
                         
Income Tax Benefit (Provision)     -       (1,030,000 )     (57,000 )
                         
Net (Loss) Income   $ (6,398,000 )   $ (4,638,000 )   $ 230,000  
                         
Loss per Common Share                        
Basic   $ (1.32 )   $ (1.65 )   $ 0.14  
Diluted   $ (1.32 )   $ (1.65 )   $ 0.14  
                         
Weighted Average Common and Common                        
Equivalent Shares:                        
                         
Basic and Diluted     4,864,540       2,811,872       1,614,506  
                         
Diluted     4,864,540       2,811,872       1,623,397  

The Singing Machine Company, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF CASH FLOWS

    For the Nine Months Ended     For the Fiscal Years Ended  
    December 31, 2023     March 31, 2023     March 31, 2022  
                   
Cash flows from operating activities                        
Net (loss) income   $ (6,398,000 )   $ (4,638,000 )   $ 230,000  
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:                        
Depreciation     287,000       228,000       246,000  
Amortization of deferred financing costs     -       47,000       45,000  
Provision for estimated cost of returns     (1,364,000 )     128,000       (156,000 )
Provision for inventory obsolesence     1,798,000       536,000       (272,000 )
Credit losses     8,000       43,000       (16,000 )
(Gain) loss from disposal of property and equipment     (44,000 )     3,000       4,000  
Stock based compensation     110,000       382,000       44,000  
Amortization of right of use assets     510,000       718,000       795,000  
Change in net deferred tax assets     -       893,000       (5,000 )
Loss on debt extinguishment     -       183,000       -  
Paycheck Protection Plan loan forgiveness     -       -       (448,000 )
Gain - related party     -       -       (11,000 )
Gain from extinguishment of accounts payable     -       (48,000 )     (339,000 )
Changes in operating assets and liabilities:                        
Accounts receivable     (5,241,000 )     667,000       (558,000 )
Accounts receivable – related parties     (30,000 )     (87,000 )     (64,000 )
Due from banks     -       101,000       4,456,000  
Inventories     415,000       3,858,000       (8,244,000 )
Prepaid expenses and other current assets     215,000       78,000       (123,000 )
Other non-current assets     76,000       (38,000 )     61,000  
Accounts payable     5,847,000       (3,511,000 )     3,217,000  
Accrued expenses     348,000       533,000       77,000  
Due to related parties     -       (63,000 )     -  
Refunds due to customer     1,743,000       -       (139,000 )
Prepaids from customers     103,000       485,000       (47,000 )
Reserve for sales returns     2,490,000       (90,000 )     30,000  
Operating lease liabilities     (462,000 )     (738,000 )     (795,000 )
Net cash provided by (used in) operating activities     411,000       (330,000 )     (2,012,000 )
Cash flows from investing activities                        
Purchase of property and equipment     (68,000 )     (244,000 )     (118,000 )
Disposal of property and equipment     54,000       -       -  
Net cash used in investing activities     (14,000 )     (244,000 )     (118,000 )
Cash flows from financing activities                        
Proceeds from issuance of stock, net of offering costs     3,529,000       3,393,000       9,001,000  
Payment of redemption and retirement of treasury stock     -       -       (7,162,000 )
Collection of subscriptions receivable     6,000       -       -  
Net (payment) proceeds from revolving lines of credit     -       (2,500,000 )     2,435,000  
Payment of subordinated note payable - Starlight Marketing Development, Ltd.     -       (353,000 )     (150,000 )
Payment of deferred financing charges     -       (254,000 )     (38,000 )
Payment of early termination fees on revolving lines of credit     -       (183,000 )     -  
Payments on installment notes     (124,000 )     (74,000 )     (68,000 )
Proceeds from exercise of stock options     -       -       14,000  
Proceeds from exercise of common stock warrants     -       990,000       -  
Proceeds from exercise of pre-funded warrants     -       168,000       -  
Payments on finance leases     -       (9,000 )     (8,000 )
Net cash provided by financing activities     3,411,000       1,178,000       4,024,000  
Net change in cash     3,808,000       604,000       1,894,000  
                         
Cash at beginning of year     2,895,000       2,291,000       397,000  
Cash at end of period   $ 6,703,000     $ 2,895,000     $ 2,291,000  
                         
Supplemental disclosures of cash flow information:                        
Cash paid for interest   $ 44,000     $ 481,000     $ 547,000  
Cash paid for income taxes   $ -     $ 34,000     $ -  
Non-Cash investing and financing cash flow information:                        
Equipment purchased under capital lease   $ -     $ 55,000     $ 24,000  
Issuance of common stock and warrants for offering costs   $ -     $ 244,000     $ 548,000  
Right of use assets exchanged for lease liabilities   $ 3,874,000     $ 192,000     $ 16,000  
Singing Machine (NASDAQ:MICS)
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