MICS Singing Machine Company Inc

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

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

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

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

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

Results of operations are summarized as follows:

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

About The Singing Machine

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

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

The Singing Machine Company, Inc. and SubsidiariesCONSOLIDATED BALANCE SHEETS

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

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

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

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

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