MICS Singing Machine Company Inc

The Singing Machine Company, Inc. (“Singing Machine” or the “Company”) (NASDAQ: MICS) -- the worldwide leader in consumer karaoke products -- today released its results of operations for the three months ended June 30, 2023. Financial highlights are as follows:

• Revenues for the three months ended June 30, 2023 were $2.6 million, as compared to $11.7 million for the same period in the prior year. The $9.1 million decrease was largely due to the distortive effects of $6.7 million in purchase orders from Walmart and Sam’s Club in the first quarter of the prior year.
• These orders were in part due to the launch of Singing Machine products in the Walmart Consumer Electronics department in mid-2022, and a direct import shipment that accelerated revenues normally booked in the second quarter into the tail end of our first quarter of fiscal 2022. Overall, first quarter of fiscal 2024 sales were consistent with the Company’s historical record for customer purchases.
• Gross margins improved to 32.3% for the first quarter of fiscal 2024, as compared to 27.2% for the same period in the prior year. The improvement was largely the result of more sales of higher margin products and efficiencies in shipping that resulted in slightly lower overall shipping expenses.
• Operating expenses were $3.3 million for the three months ended June 30, 2023, as compared to $3.0 million for the same period in the prior year. The increase was almost entirely due to a $0.3 million one-time expense relating to the closure of the Company’s logistics facility in Ontario, CA. The Company has migrated to an outsourced third-party logistics warehouse that is expected to covert fixed annual overhead expenses to variable expenses and help insulate the Company from rising occupancy and labor costs in the southern California market.
• The Company maintained a strong balance sheet with $8.6 million in working capital as of June 30, 2023. Cash on hand was $1.9 million, and additional $2.0 million was available under a revolving credit agreement as of June 30, 2023.

Management Commentary:

Gary Atkinson, Singing Machine’s Chief Executive Officer, commented, “During this first quarter we saw our supply-chain normalizing back to pre-pandemic levels. Due to the improvement in production and transportation lead-times we are seeing a timing shift from our retail partners back to just-in-time ordering. We believe this will produce more accurate buying commitments from our retail partners which we anticipate will lower the need to provide markdown incentives or other frictional costs that detract from sales and gross margins.”

“In contrast, during the same period last year, supply chain interruptions resulted in extended lead-times, forcing retailers to accelerate their order timing to ship earlier during our first quarter. Additionally, during the same quarter last year, we celebrated opening a new major department within Walmart stores which resulted in a heavy front loading of inventory to set all of the stores.” 

Atkinson continued, “Despite the timing of shipments returning to the traditional second fiscal quarter, our view on the upcoming holiday retail season remains optimistic. All of our existing retail customers have committed to karaoke programs for this holiday season and we will be launching at least five new, innovative karaoke products this fall. We are generally pleased with the purchase orders received and the timing and schedule of delivery for product shipments.”

Earnings Call Information:

The Company will host a conference call today, Friday, August 18, 2023, beginning at 5:00 PM Eastern time to discuss these results and answer questions. If you would like to participate on the call, please dial (800) 225-9448 and use conference ID: MICS.

About The Singing Machine

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

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

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Words such as "may", "could", "expects", "projects," "intends", "plans", "believes", "predicts", "anticipates", "hopes", "estimates" and variations of such words and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks and are based upon several assumptions and estimates, which are inherently subject to significant uncertainties and contingencies, many of which are beyond the Company's control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the risk factors described in the Company's filings with the Securities and Exchange Commission. The forward-looking statements are applicable only as of the date on which they are made, and the Company does not assume any obligation to update any forward-looking statements.

The Singing Machine Company, Inc. and SubsidiariesCONDENSED CONSOLIDATED BALANCE SHEETS

		June 30, 2023				March 31, 2023
		(unaudited)
Assets
Current Assets
Cash		$	1,890,014			$	2,894,574
Accounts receivable, net of allowances of $146,315 and $165,986, respectively			713,152				2,075,086
Accounts receivable related party - Stingray Group, Inc.			174,853				218,328
Accounts receivable related party - Ault Alliance, Inc.			20,750				20,750
Inventories, net			10,607,610				9,639,992
Prepaid expenses and other current assets			473,277				266,068
Deferred financing costs			84,667				84,667
Total Current Assets			13,964,323				15,199,465
Property and equipment, net			492,253				633,207
Deferred financing costs, net of current portion			109,361				130,528
Operating leases - right of use assets			331,878				561,185
Other non-current assets			124,201				124,212
Total Assets		$	15,022,016			$	16,648,597
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable		$	2,644,691			$	1,769,348
Accrued expenses			1,294,794				2,265,424
Refunds due to customers			670,699				583,323
Reserve for sales returns			331,754				900,000
Current portion of finance leases			18,531				18,162
Current portion of installment notes			82,506				80,795
Current portion of operating lease liabilities			277,733				508,515
Total Current Liabilities			5,320,708				6,125,567
Finance leases, net of current portion			41,369				46,142
Installment notes, net of current portion			36,575				57,855
Operating lease liabilities, net of current portion			78,809				87,988
Total Liabilities			5,477,461				6,317,552
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; 4,220,259 and 3,184,439 shares issued, 4,220,259 and 3,167,489 shares outstanding, respectively			42,203				31,675
Additional paid-in capital			31,478,977				29,822,205
Subscriptions receivable			-				(5,891	)
Accumulated deficit			(21,976,625	)			(19,516,944	)
Total Shareholders’ Equity			9,544,555				10,331,045
Total Liabilities and Shareholders’ Equity		$	15,022,016			$	16,648,597

See notes to the condensed consolidated financial statements

The Singing Machine Company, Inc. and SubsidiariesCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)

		For the Three Months Ended
		June 30, 2023				June 30, 2022
Net Sales		$	2,625,003			$	11,692,054
Cost of Goods Sold			1,776,153				8,511,524
Gross Profit			848,850				3,180,530
Operating Expenses
Selling expenses			445,274				605,197
General and administrative expenses			2,650,858				2,370,424
Depreciation			183,454				58,067
Total Operating Expenses			3,279,586				3,033,688
(Loss) Income from Operations			(2,430,736	)			146,842
Other Expenses
Interest expense			(7,778	)			(160,113	)
Finance costs			(21,167	)			(7,813	)
Total Other Expenses			(28,945	)			(167,926	)
Loss Before Income Tax Benefit			(2,459,681	)			(21,084	)
Income Tax Benefit			-				5,081
Net Loss		$	(2,459,681	)		$	(16,003	)
Net Loss per Common Share
Basic and Diluted		$	(0.64	)		$	(0.01	)
Weighted Average Common and Common Equivalent Shares:
Basic and Diluted			3,872,447				1,911,485

See notes to the condensed consolidated financial statements

The Singing Machine Company, Inc. and SubsidiariesCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)

		For the Three Months Ended
		June 30, 2023				June 30, 2022
Cash flows from operating activities
Net Loss		$	(2,459,681	)		$	(16,003	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			183,454				58,067
Amortization of deferred financing costs			21,167				7,813
Change in inventory reserve			132,386				-
Change in allowance for bad debts			(19,671	)			138,237
Stock based compensation			63,406				35,565
Change in net deferred tax assets			-				(5,081	)
Changes in operating assets and liabilities:
Accounts receivable			1,381,605				(7,001,987	)
Due from banks			-				(340,810	)
Accounts receivable - related parties			43,475				(90,043	)
Inventories			(1,100,004	)			1,205,145
Prepaid expenses and other current assets			(207,209	)			113,473
Other non-current assets			11				3,032
Accounts payable			875,343				1,390,942
Accrued expenses			(970,630	)			447,566
Refunds due to customers			87,376				16,034
Reserve for sales returns			(568,246	)			(108,341	)
Operating lease liabilities, net of operating leases - right of use assets			(10,654	)			(2,913	)
Net cash used in operating activities			(2,547,872	)			(4,149,304	)
Cash flows from investing activities
Purchase of property and equipment			(42,500	)			(21,801	)
Net cash used in investing activities			(42,500	)			(21,801	)
Cash flows from financing activities
Proceeds from issuance of stock - net of transaction expenses			1,603,894				3,362,750
Collection of subscriptions receivable			5,891				-
Payments on installment notes			(19,569	)			(17,995	)
Proceeds from exercise of common stock warrants			-				647,422
Proceeds from exercise of pre-funded warrants			-				168,334
Payments on finance leases			(4,404	)			(1,832	)
Net cash provided by financing activities			1,585,812				4,158,679
Net change in cash			(1,004,560	)			(12,426	)
Cash at beginning of period			2,894,574				2,290,483
Cash at end of period		$	1,890,014			$	2,278,057
Supplemental disclosures of cash flow information:
Cash paid for interest		$	6,280			$	158,490

See notes to the condensed consolidated financial statements