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2023-02-15 0000923601 MICS:ATMOfferingMember 2024-01-01 2024-03-31 0000923601 MICS:ATMOfferingMember 2023-01-01 2023-03-31 0000923601 us-gaap:RevolvingCreditFacilityMember 2024-03-28 0000923601 us-gaap:RevolvingCreditFacilityMember 2024-03-28 2024-03-28 0000923601 us-gaap:RevolvingCreditFacilityMember srt:MaximumMember 2024-03-28 2024-03-28 0000923601 us-gaap:RevolvingCreditFacilityMember 2022-10-14 0000923601 us-gaap:RevolvingCreditFacilityMember 2022-10-14 2022-10-14 0000923601 MICS:RevolvingLoanAmendmentMember 2023-08-29 0000923601 MICS:RevolvingLoanAmendmentMember 2023-08-30 0000923601 us-gaap:SubsequentEventMember 2024-07-01 2024-07-01 0000923601 MICS:OperatingLeaseAgreementMember 2017-10-01 0000923601 MICS:OperatingLeaseAgreementMember 2017-10-01 2017-10-01 0000923601 MICS:OperatingLeaseAgreementMember 2024-02-22 2024-02-22 0000923601 MICS:OperatingLeaseAgreementMember 2023-08-23 0000923601 MICS:OperatingLeaseAgreementMember 2023-08-23 2023-08-23 0000923601 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MICS:MicrophonesAndAccessoriesMember 2024-01-01 2024-03-31 0000923601 MICS:MicrophonesAndAccessoriesMember 2023-01-01 2023-03-31 0000923601 MICS:StreamingKaraokeMachinesMember 2024-01-01 2024-03-31 0000923601 MICS:StreamingKaraokeMachinesMember 2023-01-01 2023-03-31 0000923601 srt:NorthAmericaMember 2024-01-01 2024-03-31 0000923601 srt:NorthAmericaMember 2023-01-01 2023-03-31 0000923601 us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember MICS:ThreeCustomersMember 2024-01-01 2024-03-31 0000923601 us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember MICS:FourCustomersMember 2023-12-31 2023-12-31 0000923601 MICS:SalesRevenueMember us-gaap:CustomerConcentrationRiskMember MICS:ThreeCustomersMember 2024-01-01 2024-03-31 0000923601 MICS:SalesRevenueMember us-gaap:CustomerConcentrationRiskMember MICS:ThreeCustomersMember 2023-01-01 2023-03-31 0000923601 MICS:SalesRevenueMember MICS:CustomersOneMember MICS:CustomersConcentrationRiskMember 2024-01-01 2024-03-31 0000923601 MICS:SalesRevenueMember MICS:CustomersTwoMember MICS:CustomersConcentrationRiskMember 2024-01-01 2024-03-31 0000923601 us-gaap:RelatedPartyMember 2024-01-01 2024-03-31 0000923601 us-gaap:RelatedPartyMember 2023-01-01 2023-03-31 0000923601 MICS:StingrayMember 2024-03-31 0000923601 MICS:StingrayMember 2023-12-31 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure MICS:Segment utr:sqft

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ________________________

 

Commission File Number: 001-41405

 

THE SINGING MACHINE COMPANY, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   95-3795478
(State or other jurisdiction
of incorporation or organization)
  (I.R.S. Employer
Identification Number)

 

6301 NW 5th Way, Suite 2900, Fort Lauderdale, FL   33309   (954) 596-1000
(Address of principal executive offices)   (Zip Code)   (Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Act:

 

Title of Each Class   Trading Symbol   Name of each exchange on which registered
Common Stock, $0.01 par value per share   MICS   NASDAQ Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer Accelerated filer ☐
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of May 15, 2024, there were 6,418,061 shares of the issuer’s common stock, $0.01 par value per share, outstanding.

 

 

 

 
 

 

THE SINGING MACHINE COMPANY, INC.

TABLE OF CONTENTS

 

    Page No.
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements 3
     
  Condensed Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023 3
     
  Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023 (Unaudited) 4
     
  Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023 (Unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (Unaudited) 6
     
  Notes to Condensed Consolidated Financial Statements (Unaudited) 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
     
Item 4. Controls and Procedures 20
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 21
     
Item 1A. Risk Factors 21
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
     
Item 3. Defaults Upon Senior Securities 21
     
Item 4. Mine Safety Disclosures 21
     
Item 5. Other Information 21
     
Item 6. Exhibits 22
     
SIGNATURES 23

 

2

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

The Singing Machine Company, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31, 2024   December 31, 2023 
   (Unaudited)     
         
Assets          
Current Assets          
Cash  $4,125,000   $6,703,000 
Accounts receivable, net of allowances of $275,000 and $174,000, respectively   3,305,000    7,308,000 
Accounts receivable related parties   133,000    269,000 
Inventory   6,493,000    6,871,000 
Returns asset   1,262,000    1,919,000 
Prepaid expenses and other current assets   214,000    136,000 
Total Current Assets   15,532,000    23,206,000 
           
Property and equipment, net   352,000    404,000 
Operating leases - right of use assets   3,841,000    3,926,000 
Other non-current assets   179,000    179,000 
Total Assets  $19,904,000   $27,715,000 
           
Liabilities and Shareholders’ Equity          
Current Liabilities          
Accounts payable  $3,947,000   $7,616,000 
Accrued expenses   2,315,000    2,614,000 
Refund due to customer   1,443,000    1,743,000 
Customer prepayments   408,000    687,000 
Reserve for sales returns   2,419,000    3,390,000 
Other current liabilities   58,000    75,000 
Current portion of operating lease liabilities   55,000    84,000 
Total Current Liabilities   10,645,000    16,209,000 
           
Other liabilities, net of current portion   -    3,000 
Operating lease liabilities, net of current portion   4,029,000    3,925,000 
Total Liabilities   14,674,000    20,137,000 
           
 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 March 31, 2024 and December 31, 2023, respectively   64,000    64,000 
Additional paid-in capital   33,448,000    33,429,000 
Accumulated deficit   (28,282,000)   (25,915,000)
Total Shareholders’ Equity   5,230,000    7,578,000 
Total Liabilities and Shareholders’ Equity  $19,904,000   $27,715,000 

 

See notes to the condensed consolidated financial statements

 

3

 

 

The Singing Machine Company, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

       
   Three Months Ended 
   March 31, 2024   March 31, 2023 
         
Net Sales  $2,426,000   $3,383,000 
           
Cost of Goods Sold   1,924,000    2,564,000 
           
Gross Profit   502,000    819,000 
           
Operating Expenses          
Selling expenses   630,000    812,000 
General and administrative expenses   2,159,000    2,153,000 
Total Operating Expenses   2,789,000    2,965,000 
           
Loss from Operations   (2,287,000)   (2,146,000)
           
Other (Expenses) Income          
Gain from Employee Retention Credit Program refund   -    704,000 
Other Expense   -    (1,000)
Interest expense   (28,000)   (40,000)
Total Other (Expenses) Income, net   (28,000)   663,000 
           
Loss Before Income Tax Provision   (2,315,000)   (1,483,000)
           
Income Tax Provision   (52,000)   (1,502,000)
           
Net Loss  $(2,367,000)  $(2,985,000)
           
Loss per Common Share          
Basic and Diluted  $(0.37)  $(0.96)
           
Weighted Average Common and Common Equivalent Shares:          
Basic and Diluted   6,418,061    3,114,397 

 

See notes to the condensed consolidated financial statements

 

4

 

 

The Singing Machine Company, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Three Months Ended March 31, 2024 and 2023

(Unaudited)

 

   Shares                
   Common Stock   Additional        Accumulated      
   Shares   Amount   Paid in Capital   Other   Deficit   Total 
Balance at December 31, 2023   6,418,061   $64,000        33,429,000   $-   $(25,915,000)  $7,578,000 
                               
Net Income   -    -    -    -    (2,367,000)   (2,367,000)
Employee compensation-stock option   -    -    19,000    -    -    19,000 
                               
Balance at March 31, 2024   6,418,061   $64,000   $33,448,000   $-   $(28,282,000)  $5,230,000 
                               
Balance at December 31, 2022   3,148,219   $31,000   $29,699,000   $-   $(16,532,000)  $13,198,000 
                               
Net Income   -    -    -    -    (2,985,000)   (2,985,000)
Issuance of common stock   5,039    -    36,000    -    -    36,000 
Exercise of pre-funded common stock warrants   14,230    -    14,000    -    -    14,000 
Employee compensation-stock option   -    -    74,000    -    -    74,000 
Other   -    1,000    (1,000)   (6,000)   -    (6,000)
                               
Balance at March 31, 2023   3,167,488   $32,000   $29,822,000   $(6,000)  $(19,517,000)  $10,331,000 

 

See notes to the condensed consolidated financial statements

 

5

 

 

The Singing Machine Company, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   For the Three Months Ended   For the Three Months Ended 
   March 31, 2024   March 31, 2023 
         
Cash flows from operating activities          
Net loss  $(2,367,000)  $(2,985,000)
Adjustments to reconcile net loss to net cash  (used in) provided by operating activities:          
Depreciation   52,000    55,000 
Provision for estimated cost of returns   658,000    1,380,000 
Provision for inventory obsolescence   -    139,000 
Credit losses   101,000    27,000 
Loss from disposal of property and equipment   -    3,000 
Stock based compensation   19,000    74,000 
Amortization of right of use assets   84,000    87,000 
Change in net deferred tax assets   -    1,399,000 
Changes in operating assets and liabilities:          
Accounts receivable   3,902,000    4,922,000 
Accounts receivable - related parties   136,000    43,000 
Inventories   379,000    (175,000)
Prepaid expenses and other current assets   (78,000)   40,000 
Other non-current assets   -    (156,000)
Accounts payable   (3,669,000)   (315,000)
Accrued expenses   (299,000)   (970,000)
Refunds due to customer   (300,000)   490,000 
Prepaids from customers   (279,000)   - 
Reserve for sales returns   (971,000)   (2,035,000)
Operating lease liabilities   75,000    (89,000)
Net cash (used in) provided by operating activities   (2,557,000)   1,934,000 
Cash flows from investing activities          
Purchase of property and equipment   -    (95,000)
Net cash used in investing activities   -    (95,000)
Cash flows from financing activities          
Proceeds from issuance of stock, net of offering costs   -    36,000 
Subscriptions receivable   -    (6,000)
Net payment on revolving lines of credit   -    (1,761,000)
Payments on installment notes   (21,000)   (19,000)
Proceeds from exercise of common stock warrants   -    14,000 
Payments on finance leases   -    (3,000)
Net cash used in financing activities   (21,000)   (1,739,000)
Net change in cash   (2,578,000)   100,000 
           
Cash at beginning of year   6,703,000    2,795,000 
Cash at end of period  $4,125,000   $2,895,000 
           
Supplemental disclosures of cash flow information:          
Cash paid for interest  $27,000   $24,000 
Non-Cash investing and financing cash flow information:          
Equipment purchased under capital lease  $-   $55,000 

 

See notes to the condensed consolidated financial statements

 

6

 

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

(Unaudited)

 

NOTE 1 – NATURE OF BUSINESS

 

We are primarily engaged in the development, marketing, and sale of consumer karaoke audio equipment, accessories, and musical recordings. We are a global karaoke and music entertainment company that specializes in the design and production of quality karaoke and music enabled consumer products for adults and children.

 

The Singing Machine’s operations include its wholly owned subsidiaries, SMC Logistics, Inc., a California corporation (“SMCL”), SMC-Music, Inc., a Florida corporation (“SMCM”), SMC (HK) Limited, a Hong Kong company (“SMH”), MICS Hospitality Holdings, Inc., a Delaware corporation (“MICS Hospitality”), MICS Hospitality Management, LLC, a Delaware limited liability company (“MICS Hospitality Management”) and MICS Nomad, LLC, a Delaware limited liability company (“MICS NY”).

 

NOTE 2 - RECENT 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. Our results of operations, cash flows, and all transactions impacting shareholders’ equity presented in this Quarterly Report on Form 10-Q as of March 31, 2024 are for the three-month period ended March 31, 2024 and March 31, 2023.

 

Private Placement

 

On November 20, 2023, the Company entered into an agreement to sell $2,000,000 in common stock through a private placement of common stock (the “Private Placement”). The Private Placement was completed with two Affiliates, (Stingray Group, Inc. and Jay Foreman), both of which were existing shareholders with Board representation. The Private Placement was completed at $0.91 per share of common stock, with a total of approximately 2,198,000 shares issued. Net proceeds from the transaction were approximately $1,900,000, net of transaction fees of approximately $100,000. During the six-month period after the closing date, the purchasers may make a written request for registration under the Securities Act of all or any portion of the shares purchased.

 

Hospitality Lease

 

On August 23, 2023, MICS NY entered into an Agreement of Lease (the “Lease Agreement”) with OAC 111 Flatiron, LLC and OAC Adelphi, LLC (the “Landlord”), pursuant to which MICS NY agreed to lease approximately 10,000 square feet of ground floor retail space and a portion of the basement underneath the ground floor retail space in the property located at 111 West 24th Street, New York, New York (the “Premises”).

 

The term of the Lease Agreement is for fifteen (15) years, or on such an earlier date upon which the term shall expire, be canceled or terminated pursuant to any of the conditions or covenants of the Lease Agreement. Pursuant to the Lease Agreement, MICS NY is obligated to pay an initial base rent in the amount of $30,000 beginning August 1, 2024, with scheduled increases over the term, as set forth in the Lease Agreement.

 

In March 2024, the Company initiated the termination of this lease under certain provisions made available under the Lease Agreement. The Landlord and the Company are in active discussions as to the terms of the lease termination however as of this filing, it is too early in the negotiation process to estimate any potential loss, if any, related to the lease termination process.

 

7

 

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

(Unaudited)

 

ATM Offering

 

On February 15, 2023, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with Aegis Capital Corp, as sales agent (the “Agent”), pursuant to which the Company could offer and sell, from time to time, through the Agent (the “ATM Offering”), up to approximately $1,800,000 in shares of the Company’s common stock. For the three months ended March 31, 2024 and 2023, the Company received net proceeds of approximately $0 and $36,000, respectively, after payment of brokerage commissions and administrative fees to the agent. As of May 12, 2023, the Company terminated the Sales Agreement.

 

NOTE 3 – LIQUIDITY, GOING CONCERN AND MANAGEMENT PLANS

 

As of March 31, 2024, the Company had cash on hand of approximately $4,125,000 which is not sufficient to fund the Company’s planned operations through one year after the date the consolidated financial statements are issued. The Company has a recent history of recurring operating losses and decreases in working capital. These factors create substantial doubt about the Company’s ability to continue as a going concern for at least one year after the date that the Company’s audited consolidated financial statements are issued.

 

The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

 

Management intends to finance operations with future debt or equity financings, however, if and when such financings may occur are uncertain.

 

In making this assessment management performed a comprehensive analysis of the Company’s current circumstances including: its financial position, cash flow and cash usage forecasts, and obligations and debts. Although management has a recent history of successful capital raises, the analysis used to determine the Company’s ability as a going concern does not include cash sources outside the Company’s direct control that management expects to be available within the next 12 months.

 

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited financial statements for the three months ended March 31, 2024 and 2023 have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) applicable to interim financial information and the requirements of Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by US GAAP for complete consolidated financial statements.

 

In the opinion of management, such condensed consolidated financial statements include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of the condensed consolidated financial position and the condensed consolidated results of operations. The condensed consolidated results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet as of March 31, 2024 and condensed financial statements information for the three months ended March 31, 2024 and 2023 are unaudited whereas the condensed consolidated balance sheet as of December 31, 2023 is derived from the audited consolidated balance sheet as of that date. The condensed consolidated financial statements and notes hereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-KT for the transition period ended December 31, 2023. There have been no changes to our significant accounting policies as disclosed on the Company’s annual report on Form 10-KT for the transition period ended December 31, 2023.

 

8

 

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

(Unaudited)

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 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 or loss from continuing operations before income tax expense or benefit disaggregated between federal, state and foreign. ASU 2023-09 is effective for the Company for its fiscal year beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on our consolidated financial statements and related disclosures.

 

NOTE 5 – FINANCING

 

Oxford Credit Facility

 

On March 28, 2024, the Company entered into a Loan and Security Agreement with Oxford Business Credit (the “Credit Agreement”), as Lender. The Credit Agreement established a secured asset-backed revolving credit facility which is comprised of a maximum $2,000,000 revolving credit facility (“Credit Facility”). Availability under the Credit Facility is determined monthly by a borrowing base comprised of a percentage of eligible accounts receivable of the Borrowers. The Company’s obligations under the Credit Agreement are secured by a continuing security interest in all property of each Loan Party, subject to certain excluded collateral (as defined in the Credit Agreement). As of March 31, 2024, there was no availability under the Credit Facility as there were no eligible accounts receivable.

 

Borrowings under the Credit Facility take the form of base rate loans at interest rates of the Wall Street Journal Prime Rate plus 2.5%, but in any event no less than 10%. The Credit Agreement includes certain covenants which include, but are not limited to restrictions on debt, asset liens, capital expenditures, formation of new entities and financial covenants. For the three months ended March 31, 2024, the Company incurred interest expense of approximately $25,000 associated with financing costs from the Credit Agreement.

 

The Credit Agreement is for a two-year term that expires on November 28, 2026, and automatically renews for an additional one-year term on each anniversary of date of the agreement unless the Company notifies Oxford within 60 days before the anniversary date of its intention to pay off the Credit Facility and terminate the Credit Agreement.

 

The Company is subject to a two percent (2%) Exit Fee if the Company terminates the Credit Agreement and repays the obligations under Credit Facility prior to the anniversary date of the Credit Agreement. The Exit Fee shall automatically renew on the two-year anniversary date of the Loan Agreement for an additional one-year period unless the Company notifies Lender in writing within sixty (60) days before such anniversary date of Borrower’s intention to pay off this Credit Facility and terminate the Credit Agreement and all obligations of the Credit Facility are paid in full by such anniversary date. There were no draws against the Credit Facility to date.

 

Fifth Third Bank Asset-backed Revolving Credit Facility

 

On October 14, 2022, the Company entered into a Loan and Security Agreement with Fifth Third Financial Corporation (the “Credit Agreement”), as Lender, replacing the Company’s credit facilities with Crestmark and IHC that were terminated by the Company on October 13, 2022. The Credit Agreement established a secured asset-backed revolving credit facility which is comprised of a maximum $15,000,000 revolving credit facility (“Credit Facility”). The Credit Facility was terminated on November 17, 2023. Availability under the Credit Facility was determined monthly by a borrowing base comprised of a percentage of eligible accounts receivable and eligible inventory of the Borrowers. The Company’s obligations under the Credit Agreement are secured by a continuing security interest in all property of each Loan Party, subject to certain excluded collateral (as defined in the Credit Facility).

 

Costs associated with closing of the Credit Agreement of approximately $254,000 were deferred and being amortized over life of the loan. During the three months ended March 31, 2024, and 2023, the Company recorded interest expense of approximately $0 and $21,000, respectively associated with the amortization of deferred financing costs from the Credit Agreement.

 

9

 

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

(Unaudited)

 

Borrowings under the Credit Facility took the form of base rate loans at interest rates of the greater of either (a) the Prime Rate plus 0.50% or (b) the Secured Overnight Financing Rate (“SOFR”) 30-day term rate plus 3%, subject to a minimum of 0.050% in either case.

 

During the three months ended March 31, 2024, and 2023, the Company incurred interest expense of approximately $0 and $36,000, respectively, associated with interest and financing costs from the Credit Agreement.

 

On May 19, 2023, the Company executed a Waiver and First Amendment agreement which provides for a waiver of previous defaults and instituted new covenants.

 

On August 30, 2023, the Company entered into a Waiver and Second Amendment (the “Revolving Loan Amendment”) to the Credit Agreement. The Revolving Loan Amendment provides for, among other things, (i) a waiver of all known existing defaults under the Credit Agreement as of the date of the Revolving Loan Amendment and (ii) the amendment of the definition of “Borrowing Base” to reduce from $5,000,000 to $2,000,000.

 

On November 17, 2023, the Company voluntarily terminated the Credit Agreement as the Company could not comply with the debt coverage financial covenant effective September 30, 2023. There was no balance outstanding on the credit agreement as of the termination date.

 

NOTE 6 - COMMITMENTS AND CONTINGENCIES

 

Hospitality Lease

 

On August 23, 2023, MICS NY entered into an Agreement of Lease (the “Lease Agreement”) with OAC 111 Flatiron, LLC and OAC Adelphi, LLC (the “Landlord”), pursuant to which MICS NY agreed to lease approximately 10,000 square feet of ground floor retail space and a portion of the basement underneath the ground floor retail space in the property located at 111 West 24th Street, New York, New York (the “Premises”). It was the Company’s intention to use the Premises as a new karaoke venue, offering immersive karaoke technology and audio-visual capabilities, with restaurant and bar offerings however due to lack of funding, the Company initiated termination of the lease in March 2024 (See Note 8 - Operating Leases).

 

The term of the Lease Agreement is for fifteen (15) years, or on such an earlier date upon which the term shall expire, be canceled, or terminated pursuant to any of the conditions or covenants of the Lease Agreement. Pursuant to the Lease Agreement, MICS NY is obligated to pay an initial base rent in the amount of $30,000 beginning July 1, 2024, with scheduled increases over the term, as set forth in the Lease Agreement.

 

In March 2024, the Company initiated the termination of this lease under certain provisions made available under the Lease Agreement. The Landlord and the Company are in active discussions as to the terms of the lease termination however as of this filing, it is too early in the negotiation process to estimate any potential loss, if any, related to the lease termination process.

 

Derivative Litigation

 

On December 21, 2023, Ault Lending, LLC, a wholly owned subsidiary of Ault Alliance, Inc. (“Ault”), one of the Company’s largest shareholders, filed a derivative shareholder action in Delaware Chancery Court against the Company, its Directors, and other Company shareholders (The Stingray Group, Inc. and Regalia Ventures) (“the Defendants”) for alleged breach of fiduciary duty in approving a recent above-market private placement equity transaction. The Complaint alleges the Company, and its Directors followed an inadequate process in evaluating the private placement transaction which occurred back in November 2023 and entered into the transaction with an intent to dilute Ault’s ownership stake in the Company. The Defendants have retained Delaware counsel to represent them in this matter and the Company has filed a motion to dismiss the suit.

 

Other than what is disclosed above, we are not a party to, and our property is not the subject of, any pending material legal proceedings.

 

10

 

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

(Unaudited)

 

NOTE 7 – OPERATING LEASES

 

At the time of this filing, the Company has operating lease agreements for offices in Florida and Hong Kong and a retail location in New York expiring in various years through 2038.

 

The Company 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 expired on March 31, 2024. The base rent payment is approximately $9,950 per month, subject to annual adjustments. On February 22, 2024, the Company executed a lease extension for 14 months effective April 1, 2024, and expires on May 31, 2025. The base rent on the extension is approximately $10,553 per month subject to a 3% annual adjustment.

 

The Company entered into an operating lease on August 23, 2023, for approximately 10,000 square feet of ground floor retail space and a portion of the basement underneath the ground floor retail space. The lease expires August 22, 2038, and the monthly base rent is $30,000, subject to annual increases. The lease includes a 11-month free rent period between July 1, 2023, and June 30, 2024 and also includes a $700,000 reimbursement for tenant improvements upon completion of construction milestones as defined in the lease. Due to uncertainties as to whether these milestones will be met timely, the Company has not recorded any amounts related to the tenant improvement allowance in our condensed consolidated financial statements at lease inception or the three months ended March 31, 2024.

 

Supplemental balance sheet information related to leases as of March 31, 2024 and December 31, 2023 is as follows:

   

Assets:  March 31, 2024   December 31, 2023 
Operating lease - right-of-use assets  $3,841,000   $3,926,000 
           
Liabilities          
Current          
Current portion of operating leases  $55,000   $84,000 
Operating lease liabilities, net of current portion  $4,029,000   $3,925,000 

 

Supplemental statement of operations information related to operating leases is as follows:

   

   Three Months Ended   Three Months Ended 
   March 31, 2024   March 31, 2023 
Operating lease expense as a component of general and administrative expenses  $196,000   $241,000 
           
Supplemental cash flow information related to operating leases is as follows:          
Cash paid for amounts included in the measurement of lease liabilities:          
Operating cash flow paid for operating leases  $45,000   $252,000 
           
Lease term and Discount Rate          
Weighted average remaining lease term (years)   14.4    12.4 
Weighted average discount rate   11.0%   6.5%

 

Minimum future payments under all operating leases as of March 31, 2024, are as follows:

 

Payments due by period  Amount 
     
2024 (remaining 9 months)  $223,000 
2025   355,000 
2026   529,000 
2027   585,000 
2028   611,000 
Thereafter   7,555,000 
Total Minimum Future Payments   9,858,000 
Less: Interest   5,774,000 
Total operating lease liabilities  $4,084,000 
Less: current portion of lease liabilities   55,000 
Operating lease liabilities, net of current portion  $4,029,000 

 

11

 

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

(Unaudited)

 

NOTE 8 – STOCK COMPENSATION EXPENSE

 

Equity Incentive Plan

 

On April 12, 2022, the Board of Directors approved The Singing Machine Company, Inc. 2022 Equity Incentive Plan, or the 2022 Plan. The 2022 Plan provides for the issuance of equity incentive awards, such as stock options, stock appreciation rights, stock awards, restricted stock, stock units, performance awards and other stock or cash-based awards collectively, the “Awards.” Awards may be granted under the 2022 Plan to the Company’s employees, officers, directors, consultants, agents, advisors and independent contractors.

 

There was no share base compensation awards issued under the 2022 Plan during the three months ended March 31, 2024 and 2023. During the quarter ended March 31, 2024 there were 1,250 shares forfeited during the three months ended March 31, 2024. As of March 31, 2024 there were 166,719 shares available to be issued under the 2022 Plan.

 

As of March 31, 2024, there was an unrecognized expense of approximately $98,000 remaining on options currently vesting over time with an approximate weighted average of fifteen months until these options are fully vested. The vested options as of March 31, 2024, had no intrinsic value.

 

Warrants

 

Common warrants issued and outstanding as of March 31, 2024 and December 31, 2023, were 902,113. There were no changes in the warrants outstanding during the period.

 

12

 

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

(Unaudited)

 

As of March 31, 2024, the Company’s warrants by expiration date were as follows:

 

Number of
Common Warrants
   Exercise Price   Expiration Date
 802,113   $2.80   September 15, 2026
 100,000   $5.00   May 23, 2027
 902,113         

 

NOTE 9 - COMPUTATION OF (LOSS) EARNINGS PER SHARE

 

Computation of basic and dilutive loss per share for the three months ended March 31, 2024 and 2023 are as follows:

   

   For the three months
ended March 31, 2024
   For the three months
ended March 31, 2023
 
Net Loss  $2,367,000   $2,985,000 
Weighted-average common and dilutive shares outstanding   6,418,061    3,114,397 
Basic and diluted net loss per share   (0.37)  $(0.96)

 

Basic net loss per share is based on the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share reflects the potential dilution assuming shares of common stock were issued upon the exercise of outstanding in-the-money options and the proceeds thereof were used to purchase shares of the Company’s common stock at the average market price during the period using the treasury stock method.

 

For the three months ended March 31, 2024 and 2023, options to purchase 90,844 and 53,675 shares of common stock, respectively and options to purchase 902,113 common stock warrants for both March 31, 2024 and 2023 were excluded in the calculation of diluted net loss per share as the result would have been anti-dilutive.

 

NOTE 10 - INCOME TAXES

 

The Company’s income tax provision for the three months ended March 31, 2024, was approximately $52,000 due to income taxes due on amended federal tax returns filed for 2020 and 2021 which took into account the one-time refunds received from the Employee Retention Credit program. The Company’s income tax provision for the three months ended March 31, 2023, was approximately $1,502,000 as the Company recognized a valuation reserve of all of its deferred tax assets based on the recent history of losses and forecasts that suggested the Company would not be able to utilize the deferred tax assets in the future.

 

The Company’s income tax expense differs from the expected tax benefit/expense based on statutory rates primarily due to full valuation allowance for all of its subsidiaries for the three months ended March 31, 2024 and 2023.

 

13

 

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

(Unaudited)

 

NOTE 11 – REVENUE DISAGGREGATION

 

The Company disaggregates revenues by product line and major geographic region as most of its revenue is generated by the sales of karaoke hardware and the Company has no other material business segments:

 

Revenue by product line is as follows:

 

Product Line  March 31, 2024   March,31, 2023 
   Three Months Ended 
Product Line  March 31, 2024   March,31, 2023 
         
Classic Karaoke Machines  $942,000   $1,571,000 
Licensed Products   90,000    - 
SMC Kids Toys   65,000    133,000 
Microphones and Accessories   1,225,000    1,986,000 
Streaming Karaoke Machines   104,000    (307,000)
           
Total Net Sales  $2,426,000   $3,383,000 

 

Net sales for both of the three months ended March 31, 2024 and 2023 of $2,426,000 and $3,383,000, respectively, were made to North American customers.

 

The Company selectively participates in a retailer’s co-op promotion incentives by providing marketing fund allowances to its customers. As these co-op promotion initiatives are not a distinct good or service and the Company cannot reasonably estimate the fair value of the benefit it receives from these arrangements, the cost of these allowances at the time they are offered to the customers are recorded as a reduction to net sales. For the three months ended March 31, 2024 and 2023, co-op promotion incentives were approximately $109,000 and $172,000, respectively.

 

The Company estimates variable consideration under its return allowance programs for goods returned from the customer whereby a revenue return reserve is recorded based on historic return amounts, specific events as identified and management estimates. The Company’s reserve for sales returns as of March 31, 2024 and December 31, 2023, was approximately $2,419,000 and $3,390,000, respectively. In conjunction with the recording of the revenue sales return reserve, the Company estimates the cost of products that are expected to be returned under its return allowance program whereby the estimated cost of product returns is recorded as an asset and is included in inventory on the condensed consolidated balance sheets. The Company’s estimated cost of returns as of March 31, 2024 and December 31, 2023, was approximately $1,262,000 and $1,919,000, respectively.

 

A return program for defective goods is negotiated with each of the Company’s wholesale customers on a year-to-year basis. Customers are allowed to return defective goods within a specified period of time after shipment (between six and nine months). The Company does make occasional exceptions to this return policy and accordingly records a sales return reserve based on historic return amounts, specific exceptions as identified and management estimates.

 

The Company records a sales reserve for its return goods programs at the time of sale for estimated sales returns that may occur. The liability for defective goods is included in the reserve for sales returns on the condensed consolidated balance sheets.

 

14

 

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

(Unaudited)

 

NOTE 12 - CONCENTRATIONS OF CREDIT RISK AND REVENUE

 

The Company derives a majority of its revenues from retailers of products in the United States. The Company’s allowance for credit losses is based upon management’s estimates and historical experience and reflects the fact that accounts receivable is concentrated with several large customers. At March 31, 2024, 69% of accounts receivable were due from three customers in North America that individually owed over 10% of total accounts receivable. On December 31, 2023, 82% of accounts receivable were due from four customers in North America that individually owed over 10% of total accounts receivable.

 

Revenues derived from our top three customers for the three months ended March 31, 2024, and 2023, were 84% and 89% of total revenue, respectively. Revenues from customers representing greater than 10% of total net sales derived from our top two customers as a percentage of net sales for the three months ended March 31, 2024, were 60% and 14%. The loss of any of these customers could have an adverse impact on the Company.

 

NOTE 13 – RELATED PARTY TRANSACTIONS

 

Due To/From Related Parties

 

Stingray Group, Inc. (“Stingray”) is an existing shareholder with board representation. The Company has a music subscription sharing agreement with Stingray. For the three months ended March 31, 2024, and 2023, amounts earned from the subscription agreement were approximately $240,000 and $218,000, respectively. This amount was included as a component of net sales in the accompanying condensed consolidated statements of operations. On March 31, 2024 and December 31 2023, the Company had approximately $133,000 and $269,000, respectively, due from Stingray for music subscription reimbursement.

 

15

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. Words such as “anticipates,” “expects,” “intends,” “goals,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” “will,” “would,” “should,” “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on management’s expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this report and our Transition Report on Form 10-KT for the nine months period ended December 31, 2023, particularly the “Risk Factors” sections of such reports. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Readers are urged to carefully review and consider the various disclosures made in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission (the “SEC”) that disclose risks and uncertainties that may affect our business. The forward-looking statements in this Form 10-Q are made as of the date of this filing, and we do not undertake, and expressly disclaim any duty to update such statements, whether as a result of new information, new developments or otherwise, except to the extent that disclosure may be required by law.

 

You should read the following management’s discussion and analysis of financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Transition Report on Form 10-KT, filed with the SEC on April 15, 2024.

 

In this Quarterly Report, unless the context requires otherwise, references to the “Company,” “Singing Machine,” “we,” “our company” and “us” refer to The Singing Machine Company, Inc., a Delaware corporation, as well as our wholly owned subsidiaries; “SMCL” refers to SMC Logistics, Inc., a California corporation, “SMCM” refers to SMC-Music, Inc., a Florida corporation, “SMH” refers to SMC (HK) Limited, a Hong Kong company, and “MICS NY” refers to MICS Nomad, LLC, a Delaware limited liability company.

 

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.

 

Overview

 

The Singing Machine Company, Inc., a Delaware corporation (the “Company” or “The Singing Machine”) is a consumer electronics manufacturer of retail karaoke products. Based in Fort Lauderdale, Florida, and founded over forty years ago, the Company is primarily engaged in the development, marketing, and sale of a wide assortment of at-home and in-car consumer karaoke audio equipment, accessories, musical recordings and products. The Company’s portfolio is marketed under both proprietary brands and licenses including Carpool Karaoke and Sesame Street. The Company’s products are sold in locations worldwide, primarily through mass merchandisers and warehouse clubs, on-line retailers and to a lesser extent department stores, lifestyle merchants, direct mail catalogs and showrooms, music and record stores, and specialty stores.

 

The Singing Machine’s operations include its wholly owned subsidiaries, SMC Logistics, Inc., a California corporation (“SMCL”),SMC-Music, Inc., a Florida corporation (“SMCM”), SMC (HK) Limited, a Hong Kong company (“SMH”), MICS Hospitality Holdings, Inc., a Delaware corporation (“MICS Hospitality”), MICS Hospitality Management, LLC, a Delaware limited liability company (“MICS Hospitality Management”) and MICS Nomad, LLC, a Delaware limited liability company (“MICS NY”).

 

16

 

 

Recent 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. Our results of operations, cash flows, and all transactions impacting shareholders’ equity presented in this Quarterly Report on Form 10-Q as of March 31, 2024 are for the three-month period ended March 31, 2024 and March 31, 2023.

 

Oxford Credit Facility

 

On March 28, 2024, the Company and Oxford Commercial Finance, a Michigan banking corporation, (referred to as “Oxford”) entered into a Loan Agreement (the “Loan Agreement”) and related Revolving Credit Note (the “Note”) for a $2 million revolving line of credit (the “Oxford Line of Credit”). Availability under the Oxford Line of Credit is determined monthly by a borrowing base comprised of a percentage of eligible accounts receivable of the Company as set forth in the Loan Agreement.

 

In connection with the Oxford Line of Credit, the Company is required to: (a) Pay to Oxford a loan fee in the amount of one percent (1%) of the Revolving Loan Cap (as defined in the Loan Agreement); (b) Pay Field Exam (as defined in the Loan Agreement) expenses to Oxford; (c) Maintain an average outstanding principal balance of the loan for each month in the amount of Five Hundred Seventy Thousand Dollars ($570,000) (“Minimum Loan Balance”). If the actual average outstanding principal balance of the loan in any month is less than the Minimum Loan Balance, the Company must pay interest for such month calculated on the Minimum Loan Balance; (d) Pay an early exit fee to Oxford, in the event the Company terminates the Loan Agreement and repays the obligations under the Note in full, as liquidated damages and not as a penalty, in an amount equal to: (i) if prior to the one year anniversary date of the Note, two percent (2.00%) of the Revolving Loan Cap (as defined in the Loan Agreement) plus any fees which are due or to become due under the Loan Agreement, and (ii) if on and after the one year anniversary date of the Note, but prior to the two year anniversary date of the Note, two percent (2.00%) of the Revolving Loan Cap plus any fees which are due or to become due under the Loan Agreement; and (e) Pay any and all third party expenses, including the reasonable fees and disbursements of Oxford’s counsel, in connection with the preparation, administration and enforcement of the Line of Credit agreements or the other loan documents.

 

The revolving credit facility bears interest of the Prime Rate (the interest reported daily in the Wall Street Journal) plus 2.5%, but in any event, not less than 10%.

 

Pursuant to the Security Agreement (the “Security Agreement”) entered into by and between the Company and Oxford on March 28, 2024, the obligations under the Loan Agreement are secured by all of the assets of the Company, presently owned or later acquired, and all cash and non-cash proceeds thereof (including, without limitation, insurance proceeds).

 

Private Placement

 

On November 20, 2023, the Company entered into an agreement to sell $2,000,000 in common stock through a private placement of common stock (the “Private Placement”). The Private Placement was completed with two Affiliates, (Stingray Group, Inc. and Jay Foreman), both of which were existing shareholders with Board representation. The Private Placement was completed at $0.91 per share of common stock, with a total of approximately 2,198,000 shares issued. Net proceeds from the transaction were approximately $1,900,000, net of transaction fees of approximately $100,000. During the six-month period after the closing date, the purchasers may make a written request for registration under the Securities Act of all or any portion of the shares purchased.

 

Hospitality Lease

 

On August 23, 2023, MICS NY entered into an Agreement of Lease (the “Lease Agreement”) with OAC 111 Flatiron, LLC and OAC Adelphi, LLC (the “Landlord”), pursuant to which MICS NY agreed to lease approximately 10,000 square feet of ground floor retail space and a portion of the basement underneath the ground floor retail space in the property located at 111 West 24th Street, New York, New York (the “Premises”).

 

17

 

 

The term of the Lease Agreement is for fifteen (15) years, or on such an earlier date upon which the term shall expire, be canceled or terminated pursuant to any of the conditions or covenants of the Lease Agreement. Pursuant to the Lease Agreement, MICS NY is obligated to pay an initial base rent in the amount of $30,000 beginning August 1, 2024, with scheduled increases over the term, as set forth in the Lease Agreement.

 

In March 2024, the Company initiated the termination of this lease under certain provisions made available under the Lease Agreement. The Landlord and the Company are in active discussions as to the terms of the lease termination however as of this filing, it is too early in the negotiation process to estimate any potential loss, if any, related to the lease termination process.

 

ATM Offering

 

On February 15, 2023, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with Aegis Capital Corp, as sales agent (the “Agent”), pursuant to which the Company could offer and sell, from time to time, through the Agent (the “ATM Offering”), up to approximately $1,800,000 in shares of the Company’s common stock. For the three months ended March 31, 2024 and 2023, the Company received net proceeds of approximately $0 and $36,000, respectively, after payment of brokerage commissions and administrative fees to the agent. As of May 12, 2023, the Company terminated the Sales Agreement.

 

Results of Operations

 

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

 

   For Three Months Ended 
   March 31, 2024   March 31, 2023 
         
Net Sales   100.0%   100.0%
Cost of Goods Sold   79.3%   75.8%
Operating Expenses   115.0%   87.7%
Loss from Operations   -94.3%   -63.5%
Other (Expenses) Income, Net   -1.2%   19.6%
Loss Before Income Tax Provision   -95.5%   -43.9%
Income Tax Provision   -2.1%   -44.4%
Net Loss   -97.6%   -88.3%

 

Quarter Ended March 31, 2024 Compared to the Quarter Ended March 31, 2023

 

Net Sales

 

Net sales for the three months ended March 31, 2024, decreased to approximately $2,426,000 from approximately $3,383,000 representing a decrease of approximately $957,000 (28.3 %) as compared to the three months ended March 31, 2023. The decrease was primarily due to lower overall sell-through results during the holiday season, largely with our largest customer, Walmart, which in turn diminished inventory restocking need immediately after the holiday retail season.

 

Gross Profit

 

Gross profit for the three months ended March 31, 2024 decreased to approximately $502,000 from approximately $819,000 representing a decrease of approximately $317,000 (38.7%) as compared to the three months ended March 31, 2023. Gross margins for the three months ended March 31, 2024 were 20.7%, as compared to 24.2% for the three months ended March 31, 2023. Approximately $86,000 was due to lower gross margins, which was primarily caused by a $294,000 increase in repair costs during the period. The remaining $231,000 reduction in gross income was due to the reduction in sales in the first quarter of 2024 as compared to the same period in 2023.

 

18

 

 

Operating Expenses

 

During the three months ended March 31, 2024, total operating expenses decreased to approximately $2,789,000, compared to approximately $2,965,000 during the three months ended March 31, 2023. This represents a decrease in total operating expenses of approximately $176,000 (5.9%) from the three months ended March 31, 2023. The decrease in operating expenses was attributable to a decrease in selling expenses due to the decrease in commissionable sales.

 

Other (Expenses) Income, net

 

Other expense consisted of interest expense of approximately $28,000 for the three months ended March 31, 2024, as compared to other income, net of approximately $663,000 for the three months ended March 31, 2023. During the three months ended March 31, 2023 there was a one-time refund of approximately $704,000 from the Employee Retention Credit program offset by interest expense of approximately $41,000 which accounted for the increase in other income, net.

 

Income Taxes

 

The Company’s income tax provision for the three months ended March 31, 2024, was approximately $52,000 due to income taxes due on amended federal tax returns filed for 2020 and 2021 which took into account the one-time refunds received from the Employee Retention Credit program. The Company’s income tax provision for the three months ended March 31, 2023, was approximately $1,502,000 as the Company recognized a full valuation allowance on all of its deferred tax assets based on the recent history of losses and forecasts that suggested the Company would not be able to utilize the deferred tax assets in the future.

 

Liquidity and Capital Resources

 

The Company incurred a net loss of approximately $2,367,000 for the three-month period ended March 31, 2024 and has a history of recurring losses.

 

On March 31, 2024, we had cash on hand of approximately $4,125,000 as compared to approximately $6,703,000 as of December 31, 2023. The increase in cash on hand of approximately $2,578,000 from December 31, 2023, was primarily due to approximately $2,557,000 used in operations primarily due to off-peak seasonal settlement of accounts receivable offset by seasonal decreases in accounts payable (primarily to factories), accrued expenses related to seasonal accruals for estimated returned goods customer refunds and co-op incentive program expenses. As of March 31, 2024, our working capital was approximately $4,887,000.

 

On March 31, 2023, we had cash on hand of approximately $2,895,000 as compared to $2,795,000 as of December 31, 2022. The increase in cash on hand of approximately $100,000 was primarily due to approximately $1,739,000 provided by financing activities primarily due to borrowings from our credit facility with Fifth Third Bank and offset by approximately $1,934,000 in net cash used in operating activities primarily due to off-peak seasonal settlement of accounts receivable offset by seasonal increases in accounts payable, accrued expenses related to seasonal accruals for estimated returned goods, co-op incentive program expenses and customer refunds, and approximately $95,000 used in investing activities for the purchase of molds an tooling.

 

As of March 31, 2024, the Company’s cash balance was approximately $4,125,000. Based on cash flow projections from operating and financing activities and the existing balance of cash, management is of the opinion that the Company has insufficient funds to sustain operations for at least one year after the date of this report, and it may not be able to meet its payment obligations from operations and related commitments, if the Company is not able to obtain outside financing to allow the Company to continue as a going concern. Based on these factors, the Company has substantial doubt that it will continue as a going concern for the twelve months following the issuance date of the financial statements included elsewhere in this report.

 

The Company’s plan to alleviate the going concern issue is to increase revenue while controlling operating costs and expenses and obtaining funds from outside sources of financing to generate positive financing cash flows. While management is optimistic about its ability to raise funds to fund operations for at least one year after the date of this report, there can be no assurance that any such measures will be successful.

 

The Company’s ability to raise additional funds will depend, in part, on the success of our product development activities, and other events or conditions that may affect the share value or prospects, as well as factors related to financial, economic and market conditions, many of which are beyond our control. There can be no assurances that sufficient funds will be available to us when required or on acceptable terms, if at all. Accordingly, management has concluded that these plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern. Our failure to achieve or maintain profitability could negatively impact the value of our common stock.

 

19

 

 

Critical Accounting Estimates

 

Our interim financial statements were prepared in accordance with United States generally accepted accounting principles, which require management to make subjective decisions, assessments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the judgement increases, such judgements become even more subjective. While management believes that its assumptions are reasonable and appropriate, actual results may be materially different than estimated. The critical accounting estimates and assumptions have not materially changed from those identified in our Transition Report for the period ended December 31, 2023.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for small reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We have established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

 

Our principal executive officer and principal financial officer, with the assistance of other members of our management, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and is accumulated and communicated to our management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Controls over Financial Reporting

 

During our transition period ended December 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was not effective due to the material weaknesses described below.

 

  1. We lack sufficient resources in our accounting department restricting our ability to review and approve certain material journal entries which increases the likelihood that a material misstatement of interim or annual financial statements might not be prevented. Management evaluated our current process of review and approval of certain material journal entries and concluded this deficiency represented a material weakness.
     
  2. We lack sufficient resources in our accounting department, which restricts our ability to review certain material reconciliations related to financial reporting in a timely manner. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. Management evaluated the impact of our failure to have proper segregation between the preparation, review and approval of account reconciliations and concluded that this control deficiency represented a material weakness.
     
  3. Due to resource restrictions, we have not established a three-way match of documents or other controls precise enough to detect a material misstatement in revenue. Management evaluated our current process of determining the occurrence of revenue and concluded this deficiency represented a material weakness.

 

20

 

 

Planned Remediation

 

We continue to work on improving and simplifying our internal processes and implement enhanced controls to address the material weaknesses in our internal control over financial reporting discussed above and to remedy the ineffectiveness of our disclosure controls and procedures. We are addressing our accounting resource requirements to help remediate the segregation of duties and plan to implement a concise “three-way” document matching procedure. These material weaknesses will not be considered as remediated until the applicable remediated controls are operating for a sufficient period and management has concluded, through testing, that these controls are operating effectively.

 

Despite the material weaknesses identified above, we believe that the consolidated financial statements included in the period covered by this report on Form 10-Q fairly present, in all material aspects, our financial conditions, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles.

 

During the fiscal quarter ended March 31, 2024, there were no additional changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

There were no material changes during the quarter ended March 31, 2024, to our disclosure in Part I, Item 3, “Legal Proceedings” of our Form 10-KT for the period ended December 31, 2023. There are no other relevant matters to disclose under this Item for this period. See Note 7 to our consolidated financial statements entitled “Commitments and Contingencies” which is incorporated in this item by reference.

 

ITEM 1A. RISK FACTORS

 

Not required for small reporting companies.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

Rule 10b5-1 Trading Arrangement

 

During the three months ended March 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

 

21

 

 

ITEM 6. EXHIBITS

 

10.1   Loan Agreement by and between The Singing Machine Company, Inc. and Oxford Commercial Finance dated March 28, 2024 (incorporated by reference to Exhibit 10.1 in the Singing Machine’s Current Report on Form 8-K filed with the SEC on April 3, 2024).
     
10.2   Revolving Credit Note dated March 28, 2024 (incorporated by reference to Exhibit 10.2 in the Singing Machine’s Current Report on Form 8-K filed with the SEC on April 3, 2024).
     
10.3   Security Agreement by and between The Singing Machine Company, Inc. and Oxford Commercial Finance dated March 28, 2024 (incorporated by reference to Exhibit 10.3 in the Singing Machine’s Current Report on Form 8-K filed with the SEC on April 3, 2024).
     
31.1*   Certification of Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a).
     
31.2*   Certification of Chief Financial Officer required by Rule 13a-14(a) or 15d-14(a).
     
32.1**   Certification of Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
     
101.INS   Inline XBRL Instance Document
     
101.SCH   Inline XBRL Taxonomy Extension Schema Document
     
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document
     
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

* Filed herewith.
** Furnished herewith.

 

22

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  THE SINGING MACHINE COMPANY, INC.
     
Date: May 15, 2024 By: /s/ Gary Atkinson
    Gary Atkinson
    Chief Executive Officer
    (Principal Executive Officer)
     
    /s/ Richard Perez
    Richard Perez
    Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

23

 

 

EXHIBIT 31.1

 

CERTIFICATION

 

I, Gary Atkinson, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of The Singing Machine Company, Inc. for the period ended March 31, 2024;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 15, 2024 /s/ Gary Atkinson
  Gary Atkinson
  Chief Executive Officer
  (Principal Executive Officer)

 

 

 

 

EXHIBIT 31.2

 

CERTIFICATION

 

I, Richard Perez, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of The Singing Machine Company, Inc. for the period ended March 31, 2024;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 15, 2024 /s/ Richard Perez
  Richard Perez
  Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

 

 

 

 

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of The Singing Machine Company, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

Date: May 15, 2024 By: /s/ Gary Atkinson
  Name: Gary Atkinson
  Title: Chief Executive Officer
    (Principal Executive Officer)
     
Date: May 15, 2024 By: /s/ Richard Perez
  Name: Richard Perez
  Title: Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

 

 

v3.24.1.1.u2
Cover - shares
3 Months Ended
Mar. 31, 2024
May 15, 2024
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Mar. 31, 2024  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2024  
Current Fiscal Year End Date --12-31  
Entity File Number 001-41405  
Entity Registrant Name SINGING MACHINE CO INC  
Entity Central Index Key 0000923601  
Entity Tax Identification Number 95-3795478  
Entity Incorporation, State or Country Code DE  
Entity Address, Address Line One 6301 NW 5th Way  
Entity Address, Address Line Two Suite 2900  
Entity Address, City or Town Fort Lauderdale  
Entity Address, State or Province FL  
Entity Address, Postal Zip Code 33309  
City Area Code (954)  
Local Phone Number 596-1000  
Title of 12(b) Security Common Stock, $0.01 par value per share  
Trading Symbol MICS  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   6,418,061
v3.24.1.1.u2
Condensed Consolidated Balance Sheets - USD ($)
Mar. 31, 2024
Dec. 31, 2023
Current Assets    
Cash $ 4,125,000 $ 6,703,000
Inventory 6,493,000 6,871,000
Returns asset 1,262,000 1,919,000
Prepaid expenses and other current assets 214,000 136,000
Total Current Assets 15,532,000 23,206,000
Property and equipment, net 352,000 404,000
Operating leases - right of use assets 3,841,000 3,926,000
Other non-current assets 179,000 179,000
Total Assets 19,904,000 27,715,000
Current Liabilities    
Accounts payable 3,947,000 7,616,000
Accrued expenses 2,315,000 2,614,000
Refund due to customer 1,443,000 1,743,000
Customer prepayments 408,000 687,000
Reserve for sales returns 2,419,000 3,390,000
Other current liabilities 58,000 75,000
Current portion of operating lease liabilities 55,000 84,000
Total Current Liabilities 10,645,000 16,209,000
Other liabilities, net of current portion 3,000
Operating lease liabilities, net of current portion 4,029,000 3,925,000
Total Liabilities 14,674,000 20,137,000
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 March 31, 2024 and December 31, 2023, respectively 64,000 64,000
Additional paid-in capital 33,448,000 33,429,000
Accumulated deficit (28,282,000) (25,915,000)
Total Shareholders’ Equity 5,230,000 7,578,000
Total Liabilities and Shareholders’ Equity 19,904,000 27,715,000
Nonrelated Party [Member]    
Current Assets    
Accounts receivable 3,305,000 7,308,000
Related Party [Member]    
Current Assets    
Accounts receivable $ 133,000 $ 269,000
v3.24.1.1.u2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
Mar. 31, 2024
Dec. 31, 2023
Statement of Financial Position [Abstract]    
Allowance for doubtful accounts receivable, net $ 275,000 $ 174,000
Preferred stock, par value $ 1.00 $ 1.00
Preferred stock, shares authorized 1,000,000 1,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 6,418,061 6,418,061
Common stock, shares outstanding 6,418,061 6,418,061
v3.24.1.1.u2
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Income Statement [Abstract]    
Net Sales $ 2,426,000 $ 3,383,000
Cost of Goods Sold 1,924,000 2,564,000
Gross Profit 502,000 819,000
Operating Expenses    
Selling expenses 630,000 812,000
General and administrative expenses 2,159,000 2,153,000
Total Operating Expenses 2,789,000 2,965,000
Loss from Operations (2,287,000) (2,146,000)
Other (Expenses) Income    
Gain from Employee Retention Credit Program refund 704,000
Other Expense (1,000)
Interest expense (28,000) (40,000)
Total Other (Expenses) Income, net (28,000) 663,000
Loss Before Income Tax Provision (2,315,000) (1,483,000)
Income Tax Provision (52,000) (1,502,000)
Net Loss $ (2,367,000) $ (2,985,000)
Loss per Common Share Basic $ (0.37) $ (0.96)
Loss per Common Share Diluted $ (0.37) $ (0.96)
Weighted Average Common and Common Equivalent Shares:    
Weighted Average Common and Common Equivalent Shares: Basic 6,418,061 3,114,397
Weighted Average Common and Common Equivalent Shares: Diluted 6,418,061 3,114,397
v3.24.1.1.u2
Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($)
Common Stock [Member]
Additional Paid-in Capital [Member]
Other [Member]
Retained Earnings [Member]
Total
Balance at Dec. 31, 2022 $ 31,000 $ 29,699,000 $ (16,532,000) $ 13,198,000
Balance, shares at Dec. 31, 2022 3,148,219        
Net Income (2,985,000) (2,985,000)
Employee compensation-stock option 74,000 74,000
Issuance of common stock 36,000 36,000
Issuance of common stock, shares 5,039        
Exercise of pre-funded common stock warrants 14,000 14,000
Exercise of pre-funded warrants, shares 14,230        
Other $ 1,000 (1,000) (6,000) (6,000)
Balance at Mar. 31, 2023 $ 32,000 29,822,000 (6,000) (19,517,000) 10,331,000
Balance, shares at Mar. 31, 2023 3,167,488        
Balance at Dec. 31, 2023 $ 64,000 33,429,000 (25,915,000) 7,578,000
Balance, shares at Dec. 31, 2023 6,418,061        
Net Income (2,367,000) (2,367,000)
Employee compensation-stock option 19,000 19,000
Balance at Mar. 31, 2024 $ 64,000 $ 33,448,000 $ (28,282,000) $ 5,230,000
Balance, shares at Mar. 31, 2024 6,418,061        
v3.24.1.1.u2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Cash flows from operating activities    
Net loss $ (2,367,000) $ (2,985,000)
Adjustments to reconcile net loss to net cash  (used in) provided by operating activities:    
Depreciation 52,000 55,000
Provision for estimated cost of returns 658,000 1,380,000
Provision for inventory obsolescence 139,000
Credit losses 101,000 27,000
Loss from disposal of property and equipment 3,000
Stock based compensation 19,000 74,000
Amortization of right of use assets 84,000 87,000
Change in net deferred tax assets 1,399,000
Changes in operating assets and liabilities:    
Accounts receivable 3,902,000 4,922,000
Accounts receivable - related parties 136,000 43,000
Inventories 379,000 (175,000)
Prepaid expenses and other current assets (78,000) 40,000
Other non-current assets (156,000)
Accounts payable (3,669,000) (315,000)
Accrued expenses (299,000) (970,000)
Refunds due to customer (300,000) 490,000
Prepaids from customers (279,000)
Reserve for sales returns (971,000) (2,035,000)
Operating lease liabilities 75,000 (89,000)
Net cash (used in) provided by operating activities (2,557,000) 1,934,000
Cash flows from investing activities    
Purchase of property and equipment (95,000)
Net cash used in investing activities (95,000)
Cash flows from financing activities    
Proceeds from issuance of stock, net of offering costs 36,000
Subscriptions receivable (6,000)
Net payment on revolving lines of credit (1,761,000)
Payments on installment notes (21,000) (19,000)
Proceeds from exercise of common stock warrants 14,000
Payments on finance leases (3,000)
Net cash used in financing activities (21,000) (1,739,000)
Net change in cash (2,578,000) 100,000
Cash at beginning of year 6,703,000 2,795,000
Cash at end of period 4,125,000 2,895,000
Supplemental disclosures of cash flow information:    
Cash paid for interest 27,000 24,000
Non-Cash investing and financing cash flow information:    
Equipment purchased under capital lease $ 55,000
v3.24.1.1.u2
Pay vs Performance Disclosure - USD ($)
3 Months Ended
Mar. 31, 2024
Mar. 31, 2023
Pay vs Performance Disclosure [Table]    
Net Income (Loss) $ (2,367,000) $ (2,985,000)
v3.24.1.1.u2
Insider Trading Arrangements
3 Months Ended
Mar. 31, 2024
Insider Trading Arrangements [Line Items]  
Rule 10b5-1 Arrangement Adopted false
Non-Rule 10b5-1 Arrangement Adopted false
Rule 10b5-1 Arrangement Terminated false
Non-Rule 10b5-1 Arrangement Terminated false
v3.24.1.1.u2
NATURE OF BUSINESS
3 Months Ended
Mar. 31, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
NATURE OF BUSINESS

NOTE 1 – NATURE OF BUSINESS

 

We are primarily engaged in the development, marketing, and sale of consumer karaoke audio equipment, accessories, and musical recordings. We are a global karaoke and music entertainment company that specializes in the design and production of quality karaoke and music enabled consumer products for adults and children.

 

The Singing Machine’s operations include its wholly owned subsidiaries, SMC Logistics, Inc., a California corporation (“SMCL”), SMC-Music, Inc., a Florida corporation (“SMCM”), SMC (HK) Limited, a Hong Kong company (“SMH”), MICS Hospitality Holdings, Inc., a Delaware corporation (“MICS Hospitality”), MICS Hospitality Management, LLC, a Delaware limited liability company (“MICS Hospitality Management”) and MICS Nomad, LLC, a Delaware limited liability company (“MICS NY”).

 

v3.24.1.1.u2
RECENT DEVELOPMENTS
3 Months Ended
Mar. 31, 2024
Recent Developments  
RECENT DEVELOPMENTS

NOTE 2 - RECENT 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. Our results of operations, cash flows, and all transactions impacting shareholders’ equity presented in this Quarterly Report on Form 10-Q as of March 31, 2024 are for the three-month period ended March 31, 2024 and March 31, 2023.

 

Private Placement

 

On November 20, 2023, the Company entered into an agreement to sell $2,000,000 in common stock through a private placement of common stock (the “Private Placement”). The Private Placement was completed with two Affiliates, (Stingray Group, Inc. and Jay Foreman), both of which were existing shareholders with Board representation. The Private Placement was completed at $0.91 per share of common stock, with a total of approximately 2,198,000 shares issued. Net proceeds from the transaction were approximately $1,900,000, net of transaction fees of approximately $100,000. During the six-month period after the closing date, the purchasers may make a written request for registration under the Securities Act of all or any portion of the shares purchased.

 

Hospitality Lease

 

On August 23, 2023, MICS NY entered into an Agreement of Lease (the “Lease Agreement”) with OAC 111 Flatiron, LLC and OAC Adelphi, LLC (the “Landlord”), pursuant to which MICS NY agreed to lease approximately 10,000 square feet of ground floor retail space and a portion of the basement underneath the ground floor retail space in the property located at 111 West 24th Street, New York, New York (the “Premises”).

 

The term of the Lease Agreement is for fifteen (15) years, or on such an earlier date upon which the term shall expire, be canceled or terminated pursuant to any of the conditions or covenants of the Lease Agreement. Pursuant to the Lease Agreement, MICS NY is obligated to pay an initial base rent in the amount of $30,000 beginning August 1, 2024, with scheduled increases over the term, as set forth in the Lease Agreement.

 

In March 2024, the Company initiated the termination of this lease under certain provisions made available under the Lease Agreement. The Landlord and the Company are in active discussions as to the terms of the lease termination however as of this filing, it is too early in the negotiation process to estimate any potential loss, if any, related to the lease termination process.

 

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

(Unaudited)

 

ATM Offering

 

On February 15, 2023, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with Aegis Capital Corp, as sales agent (the “Agent”), pursuant to which the Company could offer and sell, from time to time, through the Agent (the “ATM Offering”), up to approximately $1,800,000 in shares of the Company’s common stock. For the three months ended March 31, 2024 and 2023, the Company received net proceeds of approximately $0 and $36,000, respectively, after payment of brokerage commissions and administrative fees to the agent. As of May 12, 2023, the Company terminated the Sales Agreement.

 

v3.24.1.1.u2
LIQUIDITY, GOING CONCERN AND MANAGEMENT PLANS
3 Months Ended
Mar. 31, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
LIQUIDITY, GOING CONCERN AND MANAGEMENT PLANS

NOTE 3 – LIQUIDITY, GOING CONCERN AND MANAGEMENT PLANS

 

As of March 31, 2024, the Company had cash on hand of approximately $4,125,000 which is not sufficient to fund the Company’s planned operations through one year after the date the consolidated financial statements are issued. The Company has a recent history of recurring operating losses and decreases in working capital. These factors create substantial doubt about the Company’s ability to continue as a going concern for at least one year after the date that the Company’s audited consolidated financial statements are issued.

 

The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

 

Management intends to finance operations with future debt or equity financings, however, if and when such financings may occur are uncertain.

 

In making this assessment management performed a comprehensive analysis of the Company’s current circumstances including: its financial position, cash flow and cash usage forecasts, and obligations and debts. Although management has a recent history of successful capital raises, the analysis used to determine the Company’s ability as a going concern does not include cash sources outside the Company’s direct control that management expects to be available within the next 12 months.

 

v3.24.1.1.u2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Mar. 31, 2024
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited financial statements for the three months ended March 31, 2024 and 2023 have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) applicable to interim financial information and the requirements of Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by US GAAP for complete consolidated financial statements.

 

In the opinion of management, such condensed consolidated financial statements include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of the condensed consolidated financial position and the condensed consolidated results of operations. The condensed consolidated results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet as of March 31, 2024 and condensed financial statements information for the three months ended March 31, 2024 and 2023 are unaudited whereas the condensed consolidated balance sheet as of December 31, 2023 is derived from the audited consolidated balance sheet as of that date. The condensed consolidated financial statements and notes hereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-KT for the transition period ended December 31, 2023. There have been no changes to our significant accounting policies as disclosed on the Company’s annual report on Form 10-KT for the transition period ended December 31, 2023.

 

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

(Unaudited)

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 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 or loss from continuing operations before income tax expense or benefit disaggregated between federal, state and foreign. ASU 2023-09 is effective for the Company for its fiscal year beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on our consolidated financial statements and related disclosures.

 

v3.24.1.1.u2
FINANCING
3 Months Ended
Mar. 31, 2024
Debt Disclosure [Abstract]  
FINANCING

NOTE 5 – FINANCING

 

Oxford Credit Facility

 

On March 28, 2024, the Company entered into a Loan and Security Agreement with Oxford Business Credit (the “Credit Agreement”), as Lender. The Credit Agreement established a secured asset-backed revolving credit facility which is comprised of a maximum $2,000,000 revolving credit facility (“Credit Facility”). Availability under the Credit Facility is determined monthly by a borrowing base comprised of a percentage of eligible accounts receivable of the Borrowers. The Company’s obligations under the Credit Agreement are secured by a continuing security interest in all property of each Loan Party, subject to certain excluded collateral (as defined in the Credit Agreement). As of March 31, 2024, there was no availability under the Credit Facility as there were no eligible accounts receivable.

 

Borrowings under the Credit Facility take the form of base rate loans at interest rates of the Wall Street Journal Prime Rate plus 2.5%, but in any event no less than 10%. The Credit Agreement includes certain covenants which include, but are not limited to restrictions on debt, asset liens, capital expenditures, formation of new entities and financial covenants. For the three months ended March 31, 2024, the Company incurred interest expense of approximately $25,000 associated with financing costs from the Credit Agreement.

 

The Credit Agreement is for a two-year term that expires on November 28, 2026, and automatically renews for an additional one-year term on each anniversary of date of the agreement unless the Company notifies Oxford within 60 days before the anniversary date of its intention to pay off the Credit Facility and terminate the Credit Agreement.

 

The Company is subject to a two percent (2%) Exit Fee if the Company terminates the Credit Agreement and repays the obligations under Credit Facility prior to the anniversary date of the Credit Agreement. The Exit Fee shall automatically renew on the two-year anniversary date of the Loan Agreement for an additional one-year period unless the Company notifies Lender in writing within sixty (60) days before such anniversary date of Borrower’s intention to pay off this Credit Facility and terminate the Credit Agreement and all obligations of the Credit Facility are paid in full by such anniversary date. There were no draws against the Credit Facility to date.

 

Fifth Third Bank Asset-backed Revolving Credit Facility

 

On October 14, 2022, the Company entered into a Loan and Security Agreement with Fifth Third Financial Corporation (the “Credit Agreement”), as Lender, replacing the Company’s credit facilities with Crestmark and IHC that were terminated by the Company on October 13, 2022. The Credit Agreement established a secured asset-backed revolving credit facility which is comprised of a maximum $15,000,000 revolving credit facility (“Credit Facility”). The Credit Facility was terminated on November 17, 2023. Availability under the Credit Facility was determined monthly by a borrowing base comprised of a percentage of eligible accounts receivable and eligible inventory of the Borrowers. The Company’s obligations under the Credit Agreement are secured by a continuing security interest in all property of each Loan Party, subject to certain excluded collateral (as defined in the Credit Facility).

 

Costs associated with closing of the Credit Agreement of approximately $254,000 were deferred and being amortized over life of the loan. During the three months ended March 31, 2024, and 2023, the Company recorded interest expense of approximately $0 and $21,000, respectively associated with the amortization of deferred financing costs from the Credit Agreement.

 

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 and 2023

(Unaudited)

 

Borrowings under the Credit Facility took the form of base rate loans at interest rates of the greater of either (a) the Prime Rate plus 0.50% or (b) the Secured Overnight Financing Rate (“SOFR”) 30-day term rate plus 3%, subject to a minimum of 0.050% in either case.

 

During the three months ended March 31, 2024, and 2023, the Company incurred interest expense of approximately $0 and $36,000, respectively, associated with interest and financing costs from the Credit Agreement.

 

On May 19, 2023, the Company executed a Waiver and First Amendment agreement which provides for a waiver of previous defaults and instituted new covenants.

 

On August 30, 2023, the Company entered into a Waiver and Second Amendment (the “Revolving Loan Amendment”) to the Credit Agreement. The Revolving Loan Amendment provides for, among other things, (i) a waiver of all known existing defaults under the Credit Agreement as of the date of the Revolving Loan Amendment and (ii) the amendment of the definition of “Borrowing Base” to reduce from $5,000,000 to $2,000,000.

 

On November 17, 2023, the Company voluntarily terminated the