株探米国株
英語
エドガーで原本を確認する
false Q2 --12-31 0000923601 SINGING MACHINE CO INC P2Y 0000923601 2024-01-01 2024-06-30 0000923601 2024-08-16 0000923601 2024-06-30 0000923601 2023-12-31 0000923601 us-gaap:NonrelatedPartyMember 2024-06-30 0000923601 us-gaap:NonrelatedPartyMember 2023-12-31 0000923601 us-gaap:RelatedPartyMember 2024-06-30 0000923601 us-gaap:RelatedPartyMember 2023-12-31 0000923601 2024-04-01 2024-06-30 0000923601 2023-04-01 2023-06-30 0000923601 2023-01-01 2023-06-30 0000923601 us-gaap:CommonStockMember 2024-03-31 0000923601 us-gaap:AdditionalPaidInCapitalMember 2024-03-31 0000923601 MICS:OtherMember 2024-03-31 0000923601 us-gaap:RetainedEarningsMember 2024-03-31 0000923601 2024-03-31 0000923601 us-gaap:CommonStockMember 2023-03-31 0000923601 us-gaap:AdditionalPaidInCapitalMember 2023-03-31 0000923601 MICS:OtherMember 2023-03-31 0000923601 us-gaap:RetainedEarningsMember 2023-03-31 0000923601 2023-03-31 0000923601 us-gaap:CommonStockMember 2023-12-31 0000923601 us-gaap:AdditionalPaidInCapitalMember 2023-12-31 0000923601 us-gaap:RetainedEarningsMember 2023-12-31 0000923601 us-gaap:CommonStockMember 2022-12-31 0000923601 us-gaap:AdditionalPaidInCapitalMember 2022-12-31 0000923601 us-gaap:RetainedEarningsMember 2022-12-31 0000923601 2022-12-31 0000923601 us-gaap:CommonStockMember 2024-04-01 2024-06-30 0000923601 us-gaap:AdditionalPaidInCapitalMember 2024-04-01 2024-06-30 0000923601 MICS:OtherMember 2024-04-01 2024-06-30 0000923601 us-gaap:RetainedEarningsMember 2024-04-01 2024-06-30 0000923601 us-gaap:CommonStockMember 2023-04-01 2023-06-30 0000923601 us-gaap:AdditionalPaidInCapitalMember 2023-04-01 2023-06-30 0000923601 MICS:OtherMember 2023-04-01 2023-06-30 0000923601 us-gaap:RetainedEarningsMember 2023-04-01 2023-06-30 0000923601 us-gaap:CommonStockMember 2024-01-01 2024-06-30 0000923601 us-gaap:AdditionalPaidInCapitalMember 2024-01-01 2024-06-30 0000923601 us-gaap:RetainedEarningsMember 2024-01-01 2024-06-30 0000923601 us-gaap:CommonStockMember 2023-01-01 2023-06-30 0000923601 us-gaap:AdditionalPaidInCapitalMember 2023-01-01 2023-06-30 0000923601 us-gaap:RetainedEarningsMember 2023-01-01 2023-06-30 0000923601 us-gaap:CommonStockMember 2024-06-30 0000923601 us-gaap:AdditionalPaidInCapitalMember 2024-06-30 0000923601 MICS:OtherMember 2024-06-30 0000923601 us-gaap:RetainedEarningsMember 2024-06-30 0000923601 us-gaap:CommonStockMember 2023-06-30 0000923601 us-gaap:AdditionalPaidInCapitalMember 2023-06-30 0000923601 MICS:OtherMember 2023-06-30 0000923601 us-gaap:RetainedEarningsMember 2023-06-30 0000923601 2023-06-30 0000923601 MICS:ATMOfferingMember 2024-06-26 2024-06-26 0000923601 MICS:FirstAmendmentMember us-gaap:SubsequentEventMember 2024-07-08 2024-07-08 0000923601 MICS:SecondAmendmentMember us-gaap:SubsequentEventMember 2024-08-09 2024-08-09 0000923601 MICS:ATMOfferingMember 2024-04-01 2024-06-30 0000923601 MICS:ATMOfferingMember 2024-01-01 2024-06-30 0000923601 MICS:ATMOfferingMember 2024-06-30 0000923601 us-gaap:SubsequentEventMember MICS:ATMOfferingMember 2024-07-01 2024-08-16 0000923601 MICS:SemiCabLLCMember us-gaap:SubsequentEventMember 2024-07-03 2024-07-03 0000923601 MICS:SemiCabLLCMember us-gaap:SubsequentEventMember 2024-07-03 0000923601 us-gaap:PrivatePlacementMember 2023-11-20 2023-11-20 0000923601 us-gaap:PrivatePlacementMember 2023-11-20 0000923601 us-gaap:PrivatePlacementMember 2024-01-01 2024-06-30 0000923601 MICS:LeaseAgreementMember 2023-08-23 0000923601 MICS:LeaseAgreementMember 2023-08-23 2023-08-23 0000923601 us-gaap:RevolvingCreditFacilityMember 2024-03-28 0000923601 us-gaap:RevolvingCreditFacilityMember us-gaap:RelatedPartyMember 2024-06-30 0000923601 us-gaap:RevolvingCreditFacilityMember 2024-06-30 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 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 MICS:TwoThousandTwentyTwoPlanMember 2024-01-01 2024-06-30 0000923601 MICS:TwoThousandTwentyTwoPlanMember 2023-01-01 2023-06-30 0000923601 MICS:TwoThousandTwentyTwoPlanMember 2023-04-01 2023-06-30 0000923601 MICS:TwoThousandTwentyTwoPlanMember 2024-04-01 2024-06-30 0000923601 MICS:TwoThousandTwentyTwoPlanMember 2024-06-30 0000923601 MICS:ExercisePriceRangeOneMember 2024-06-30 0000923601 MICS:ExercisePriceRangeTwoMember 2024-06-30 0000923601 us-gaap:EmployeeStockOptionMember 2024-04-01 2024-06-30 0000923601 us-gaap:EmployeeStockOptionMember 2024-01-01 2024-06-30 0000923601 us-gaap:EmployeeStockOptionMember 2023-04-01 2023-06-30 0000923601 us-gaap:EmployeeStockOptionMember 2023-01-01 2023-06-30 0000923601 us-gaap:EmployeeStockOptionMember us-gaap:WarrantMember 2024-01-01 2024-06-30 0000923601 us-gaap:EmployeeStockOptionMember us-gaap:WarrantMember 2023-01-01 2023-06-30 0000923601 MICS:ClassicKaraokeMachinesMember 2024-04-01 2024-06-30 0000923601 MICS:ClassicKaraokeMachinesMember 2023-04-01 2023-06-30 0000923601 MICS:ClassicKaraokeMachinesMember 2024-01-01 2024-06-30 0000923601 MICS:ClassicKaraokeMachinesMember 2023-01-01 2023-06-30 0000923601 MICS:LicensedProductsMember 2024-04-01 2024-06-30 0000923601 MICS:LicensedProductsMember 2023-04-01 2023-06-30 0000923601 MICS:LicensedProductsMember 2024-01-01 2024-06-30 0000923601 MICS:LicensedProductsMember 2023-01-01 2023-06-30 0000923601 MICS:SMCKidsToysMember 2024-04-01 2024-06-30 0000923601 MICS:SMCKidsToysMember 2023-04-01 2023-06-30 0000923601 MICS:SMCKidsToysMember 2024-01-01 2024-06-30 0000923601 MICS:SMCKidsToysMember 2023-01-01 2023-06-30 0000923601 MICS:MicrophonesAndAccessoriesMember 2024-04-01 2024-06-30 0000923601 MICS:MicrophonesAndAccessoriesMember 2023-04-01 2023-06-30 0000923601 MICS:MicrophonesAndAccessoriesMember 2024-01-01 2024-06-30 0000923601 MICS:MicrophonesAndAccessoriesMember 2023-01-01 2023-06-30 0000923601 MICS:MusicAndOtherIncomeMember 2024-04-01 2024-06-30 0000923601 MICS:MusicAndOtherIncomeMember 2023-04-01 2023-06-30 0000923601 MICS:MusicAndOtherIncomeMember 2024-01-01 2024-06-30 0000923601 MICS:MusicAndOtherIncomeMember 2023-01-01 2023-06-30 0000923601 country:AU 2024-04-01 2024-06-30 0000923601 country:AU 2023-04-01 2023-06-30 0000923601 country:AU 2024-01-01 2024-06-30 0000923601 country:AU 2023-01-01 2023-06-30 0000923601 srt:NorthAmericaMember 2024-04-01 2024-06-30 0000923601 srt:NorthAmericaMember 2023-04-01 2023-06-30 0000923601 srt:NorthAmericaMember 2024-01-01 2024-06-30 0000923601 srt:NorthAmericaMember 2023-01-01 2023-06-30 0000923601 us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember MICS:ThreeCustomersMember 2024-01-01 2024-06-30 0000923601 us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember MICS:FourCustomersMember 2023-12-31 2023-12-31 0000923601 MICS:SalesRevenueMember us-gaap:CustomerConcentrationRiskMember MICS:CustomersOneMember 2024-04-01 2024-06-30 0000923601 MICS:SalesRevenueMember us-gaap:CustomerConcentrationRiskMember MICS:CustomersTwoMember 2024-04-01 2024-06-30 0000923601 MICS:SalesRevenueMember us-gaap:CustomerConcentrationRiskMember MICS:CustomersThreeMember 2024-04-01 2024-06-30 0000923601 MICS:SalesRevenueMember us-gaap:CustomerConcentrationRiskMember MICS:CustomersOneMember 2023-04-01 2023-06-30 0000923601 MICS:SalesRevenueMember us-gaap:CustomerConcentrationRiskMember MICS:CustomersOneMember 2024-01-01 2024-06-30 0000923601 MICS:SalesRevenueMember us-gaap:CustomerConcentrationRiskMember MICS:CustomersTwoMember 2024-01-01 2024-06-30 0000923601 MICS:SalesRevenueMember us-gaap:CustomerConcentrationRiskMember MICS:CustomersThreeMember 2024-01-01 2024-06-30 0000923601 MICS:SalesRevenueMember us-gaap:CustomerConcentrationRiskMember MICS:CustomersTwoMember 2023-04-01 2023-06-30 0000923601 MICS:SalesRevenueMember us-gaap:CustomerConcentrationRiskMember MICS:CustomersOneMember 2023-01-01 2023-06-30 0000923601 us-gaap:RelatedPartyMember 2024-04-01 2024-06-30 0000923601 us-gaap:RelatedPartyMember 2023-04-01 2023-06-30 0000923601 us-gaap:RelatedPartyMember 2024-01-01 2024-06-30 0000923601 us-gaap:RelatedPartyMember 2023-01-01 2023-06-30 0000923601 MICS:StingrayMember 2024-06-30 0000923601 MICS:StingrayMember 2023-12-31 0000923601 MICS:AssetPurchaseAgreementMember us-gaap:SubsequentEventMember 2024-07-03 2024-07-03 0000923601 MICS:TwoThousandTwentyFourMember MICS:AjeshKapoorMember MICS:EmploymentAgreementsMember us-gaap:SubsequentEventMember 2024-07-03 2024-07-03 0000923601 MICS:TwoThousandTwentyFiveMember MICS:AjeshKapoorMember MICS:EmploymentAgreementsMember us-gaap:SubsequentEventMember 2024-07-03 2024-07-03 0000923601 MICS:SubsequentYearsMember MICS:AjeshKapoorMember MICS:EmploymentAgreementsMember us-gaap:SubsequentEventMember 2024-07-03 2024-07-03 0000923601 MICS:TwoThousandTwentyFourMember MICS:VivekSehgalKapoorMember MICS:EmploymentAgreementsMember us-gaap:SubsequentEventMember 2024-07-03 2024-07-03 0000923601 MICS:TwoThousandTwentyFiveMember MICS:VivekSehgalKapoorMember MICS:EmploymentAgreementsMember us-gaap:SubsequentEventMember 2024-07-03 2024-07-03 0000923601 MICS:TwoThousandTwentySixMember MICS:VivekSehgalKapoorMember MICS:EmploymentAgreementsMember us-gaap:SubsequentEventMember 2024-07-03 2024-07-03 0000923601 MICS:TwoThousandTwentySevenMember MICS:VivekSehgalKapoorMember MICS:EmploymentAgreementsMember us-gaap:SubsequentEventMember 2024-07-03 2024-07-03 0000923601 MICS:TwoThousandTwentyEightMember MICS:VivekSehgalKapoorMember MICS:EmploymentAgreementsMember us-gaap:SubsequentEventMember 2024-07-03 2024-07-03 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 June 30, 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 August 16, 2024, there were 9,736,850 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 June 30, 2024 (Unaudited) and December 31, 2023 3
     
  Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2024 and 2023 (Unaudited) 4
     
  Condensed Consolidated Statements of Stockholders’(Deficit) Equity for the three and six months ended June 30, 2024 and 2023 (Unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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 17
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
     
Item 4. Controls and Procedures 22
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 23
     
Item 1A. Risk Factors 23
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
     
Item 3. Defaults Upon Senior Securities 24
     
Item 4. Mine Safety Disclosures 24
     
Item 5. Other Information 24
     
Item 6. Exhibits 24
     
SIGNATURES 25

 

2

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

The Singing Machine Company, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    June 30, 2024     December 31, 2023  
    (Unaudited)        
             
Assets                
Current Assets                
Cash   $ 1,245,000     $ 6,703,000  
Accounts receivable, net of allowances of $86,919 and $174,000, respectively     2,349,000       7,308,000  
Due from Oxford Bank     187,000       -  
Accounts receivable related parties     414,000       269,000  
Inventory     6,910,000       6,871,000  
Returns asset     619,000       1,919,000  
Prepaid expenses and other current assets     67,000       136,000  
Total Current Assets     11,791,000       23,206,000  
                 
Property and equipment, net     305,000       404,000  
Operating leases - right of use assets     178,000       3,926,000  
Other non-current assets     93,000       179,000  
Total Assets   $ 12,367,000     $ 27,715,000  
                 
Liabilities and Shareholders’ Equity                
Current Liabilities                
Accounts payable   $ 3,676,000     $ 7,616,000  
Accrued expenses     1,842,000       2,614,000  
Refund due to customer     1,171,000       1,743,000  
Customer prepayments     38,000       687,000  
Reserve for sales returns     2,174,000       3,390,000  
Other current liabilities     37,000       75,000  
Current portion of operating lease liabilities     165,000       84,000  
Total Current Liabilities     9,103,000       16,209,000  
                 
Other liabilities, net of current portion     -       3,000  
Operating lease liabilities, net of current portion     4,136,000       3,925,000  
Total Liabilities     13,239,000       20,137,000  
                 
Commitments and Contingencies     -       -  
                 
Shareholders’ (Deficit) 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; 7,418,061 issued and 6,418,061 shares outstanding at June 30, 2024 and 6,418,061 issued and outstanding at December 31, 2023.     64,000       64,000  
Additional paid-in capital     33,465,000       33,429,000  
Accumulated deficit     (34,401,000 )     (25,915,000 )
Total Shareholders’ (Deficit) Equity     (872,000 )     7,578,000  
Total Liabilities and Shareholders’ (Deficit) Equity   $ 12,367,000     $ 27,715,000  

 

See notes to the condensed consolidated financial statements

 

3

 

The Singing Machine Company, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    June 30, 2024     June 30, 2023     June 30, 2024     June 30, 2023  
    For the Three Months Ended     For the Six Months Ended  
    June 30, 2024     June 30, 2023     June 30, 2024     June 30, 2023  
                         
Net Sales   $ 2,440,000     $ 2,625,000     $ 4,866,000     $ 6,008,000  
                                 
Cost of Goods Sold     2,116,000       2,096,000       4,040,000       4,659,000  
                                 
Gross Profit     324,000       529,000       826,000       1,349,000  
                                 
Operating Expenses                                
Selling expenses     547,000       445,000       1,177,000       1,257,000  
General and administrative expenses     2,053,000       2,515,000       4,212,000       4,670,000  
Operating lease impairment expense     3,878,000       -       3,878,000       -  
Total Operating Expenses     6,478,000       2,960,000       9,267,000       5,927,000  
                                 
Loss from Operations     (6,154,000 )     (2,431,000 )     (8,441,000 )     (4,578,000 )
                                 
Other (Expenses) Income                                
Gain from Employee Retention Credit Program refund     -       -       -       704,000  
Interest expense     (17,000 )     (29,000 )     (45,000 )     (69,000 )
Total Other (Expenses) Income, net     (17,000 )     (29,000 )     (45,000 )     635,000  
                                 
Loss Before Income Tax Benefit (Provision)     (6,171,000 )     (2,460,000 )     (8,486,000 )     (3,943,000 )
                                 
Income Tax Benefit (Provision)     52,000       -       -       (1,502,000 )
                                 
Net Loss   $ (6,119,000 )   $ (2,460,000 )   $ (8,486,000 )   $ (5,445,000 )
                                 
Loss per common share                                
Basic and diluted   $ (0.95 )   $ (0.64 )   $ (1.32 )   $ (1.56 )
                                 
Weighted Average Common and Common Equivalent Shares:                                
                               
Basic and diluted     6,418,061       3,872,447       6,418,061       3,487,299  

 

See notes to the condensed consolidated financial statements

 

4

 

The Singing Machine Company, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

 

For the Three Months Ended June 30, 2024 and 2023

(Unaudited)

 

    Shares     Amount     Capital     Other     Deficit     Total  
    Common Stock    

Additional

Paid in

          Accumulated        
    Shares     Amount     Capital     Other     Deficit     Total  
Balance at March 31, 2024     6,418,061     $ 64,000     $ 33,448,000     $ -     $ (28,282,000 )   $ 5,230,000  
                                                 
Net loss     -       -       -       -       (6,119,000 )     (6,119,000 )
Stock based compensation     -       -       17,000       -       -       17,000  
                                                 
Balance at June 30, 2024     6,418,061     $ 64,000     $ 33,465,000     $ -     $ (34,401,000 )   $ (872,000 )

 

      Common Stock       Additional Paid in               Accumulated          
      Shares       Amount       Capital       Other       Deficit       Total  
Balance at March 31, 2023     3,167,488     $ 32,000     $ 29,822,000     $ (6,000 )   $ (19,517,000 )   $ 10,331,000  
                                                 
Net loss     -       -       -       -       (2,460,000 )     (2,460,000 )
Sale of common stock, net of offering costs     1,052,771       11,000       1,593,000       -       -       1,604,000  
Stock based compensation     -       -       63,000       -       -       63,000  
Other     -       (1,000 )     1,000       6,000       -       6,000  
                                                 
Balance at June 30, 2023     4,220,259     $ 42,000     $ 31,479,000     $ -     $ (21,977,000 )   $ 9,544,000  

 

For the Six Months Ended June 30, 2024 and 2023

(Unaudited)

 

    Shares     Amount     Capital     Deficit     Total  
    Common Stock    

Additional

Paid in

    Accumulated      
    Shares     Amount     Capital     Deficit     Total  
                               
Balance at December 31, 2023     6,418,061     $ 64,000     $ 33,429,000     $ (25,915,000 )   $ 7,578,000  
                                         
Net loss     -       -       -       (8,486,000 )     (8,486,000 )
Stock based compensation     -       -       36,000       -       36,000  
                                         
Balance at June 30, 2024     6,418,061     $ 64,000     $ 33,465,000     $ (34,401,000 )   $ (872,000 )
                                         
Balance at December 31, 2022     3,148,219     $ 31,000     $ 29,698,000     $ (16,531,000 )   $ 13,198,000  
                                         
Net loss     -       -       -       (5,445,000 )     (5,445,000 )
Sale of common stock, net of offering costs     1,057,810       11,000       1,629,000       -       1,640,000  
Sale of common stock warrants     14,230       -       14,000       -       14,000  
Stock based compensation     -       -       138,000       -     138,000  
Other     -       -       -       (1,000 )     (1,000 )
                                         
Balance at June 30, 2023     4,220,259     $ 42,000     $ 31,479,000     $ (21,977,000 )   $ 9,544,000  

 

See notes to the condensed consolidated financial statements.

 

5

 

The Singing Machine Company, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    June 30, 2024     June 30, 2023  
    For the Six Months Ended  
    June 30, 2024     June 30, 2023  
             
Cash flows from operating activities                
Net loss   $ (8,486,000 )     (5,445,000 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     105,000       238,000  
Provision for estimated cost of returns     1,301,000       1,820,000  
Provision for inventory obsolescence     -       271,000  
Credit losses     14,000       7,000  
Operating lease impairment expense     3,878,000       -  
Loss from disposal of property and equipment     -       3,000  
Stock based compensation     36,000       138,000  
Amortization of right of use assets     20,000       316,000  
Change in net deferred tax assets     -       1,399,000  
Changes in operating assets and liabilities:                
Accounts receivable     4,945,000       6,303,000  
Due from banks     (187,000 )     -  
Accounts receivable - related parties     (145,000 )     87,000  
Inventories     (38,000 )     (1,714,000 )
Prepaid expenses and other current assets     69,000       (167,000 )
Other non-current assets     (64,000 )     (135,000 )
Accounts payable     (3,940,000 )     560,000  
Accrued expenses     (771,000 )     (1,939,000 )
Customer deposits     (572,000 )     -  
Refunds due to customers     (649,000 )     577,000  
Reserve for sales returns     (1,217,000 )     (2,604,000 )
Operating lease liabilities     291,000       (329,000 )
Net cash used in operating activities     (5,410,000 )     (614,000 )
Cash flows from investing activities                
Purchase of property and equipment     (6,000 )     (137,000 )
Net cash used in investing activities     (6,000 )     (137,000 )
Cash flows from financing activities                
Proceeds from sale of stock, net of offering costs     -       1,640,000  
Net payments on revolving lines of credit     -       (1,761,000 )
Other     (42,000 )     (33,000 )
Net cash used in financing activities     (42,000 )     (154,000 )
Net change in cash     (5,458,000 )     (905,000 )
                 
Cash at beginning of year     6,703,000       2,795,000  
Cash at end of period     1,245,000       1,890,000  
                 
Supplemental disclosures of cash flow information:                
Cash paid for interest     40,000       24,000  
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

June 30, 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 June 30, 2024 are for the three and six month periods ended June 30, 2024 and 2023.

 

ATM Offering June 2024

 

On June 26, 2024, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with Ascendiant Capital markets, LLC, 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 $1,100,000 in shares of the Company’s common stock. On July 8, 2024, the Company entered into the First Amendment to the Sales Agreement (the “Amendment”) to increase the number of shares to be sold in the ATM Offering to $2,020,000. On August 9, 2024, the Company entered into the Second Amendment to the Sales Agreement (the “Amendment”) to increase the number of shares to be sold in the ATM Offering to $3,100,000. For the three and six months ended June 30, 2024, the Company had not yet sold any shares of its common stock from this ATM Offering. Pursuant to the agreement, the Agent is to be paid $30,000 in fees to cover legal and administrative expenses and will receive an amount equal to 3% of the gross proceeds from each sale of the Company’s share of common stock.

 

Subsequent to June 30, 2024 and through August 16, 2024 (the last trading day prior to filing), the Company sold 1,657,172 shares of common stock under the ATM offering, and received net proceeds from the ATM of approximately $1,676,000 after payment of brokerage commissions and administrative fees to the agent of approximately $51,000.

 

Asset Purchase

 

On June 11, 2024, the Company and its wholly owned subsidiary SemiCab Holdings, LLC, a Nevada limited liability company (“SemiCab LLC” and collectively with the Company, the “Buyer”), SemiCab, Inc., a Delaware corporation (“SemiCab” or the “Seller”), Ajesh Kapoor and Vivek Sehgal entered into an asset purchase agreement (the “Asset Purchase Agreement”) pursuant to which the Seller agreed to sell and assign to the Company, and the Company agreed to purchase and assume from the Seller, substantially all the assets, and certain specified liabilities relating to the business of the Seller. Subject to certain exceptions set forth in the Asset Purchase Agreement, the parties agreed that the Buyer will not assume the liabilities of the Seller. SemiCab is an artificial intelligence, cloud-based collaborative transportation platform built to achieve the scalability required to predict and optimize semi-tractor trailer load efficiency.

 

On July 3, 2024, the parties closed on the asset purchase whereby the Company issued to the Seller (i) 641,806 shares of the Company’s common stock (ii) a twenty percent (20%) membership interest in SemiCab LLC.

 

Pursuant to the asset acquisition agreement, the Company and Seller entered into an option agreement (the “Option Agreement”), granting the Buyer the right to acquire all of the issued and outstanding capital securities of SMCB Solutions Private Limited, a wholly owned subsidiary of the Seller, in consideration for 320,903 shares of common stock of the Company. The Option Agreement has not been exercised through the date of this filing.

 

7

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024 and 2023

(Unaudited)

 

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. During the six months ended June 30, 2024, Jay Foreman has made a written request to register his 1,099,000 shares.

 

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.

 

During the three months ended June 30, 2024, the Company abandoned its plans to continue use of the leased space due to failure to receive a liquor license. Consequently, the Company exercised its early termination provision of the Lease Agreement which was not accepted by the Landlord. While attempting to settle, the Company failed to make the first recurring cash lease payment due on July 31, 2024, and as a result defaulted on the lease. Due to the abandonment of the lease, all assets related to the lease were impaired. Assets including security deposits, rent deposits and right of use assets of approximately $3,878,000 have been written off during the three months ended June 30, 2024 and are included as a component of operating expenses in the accompanying condensed consolidated statements of operations.

 

On July 26, 2024, OAC 111 Flatiron, LLC and OAC Adelphi, LLC, filed a civil action in the Supreme Court of the State of New York against MICS NY and the Company (“the Defendants”) for alleged breach of lease, seeking monetary damages including unpaid rent, future unpaid rent, and other expenses related to the lease. The complaint alleges the Defendants breached the lease in various material respects. Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot reasonably estimate the potential loss or range of loss that may result from this action.

 

NOTE 3 – LIQUIDITY, GOING CONCERN AND MANAGEMENT PLANS

 

As of June 30, 2024, the Company had cash on hand of approximately $1,245,000 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.

 

8

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024 and 2023

(Unaudited)

 

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 June 30, 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 June 30, 2024 and condensed financial statements information for the three and six months ended June 30, 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.

 

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 (the “Credit Agreement”) with Oxford Business Credit “Oxford”), 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 June 30, 2024, there was approximately $187,000 due from Oxford for cash collections received that exceeded the amount due on the Credit Agreement. As of June 30, 2024 there was approximately $89,000 available under the Credit Facility.

 

9

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024 and 2023

(Unaudited)

 

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 and six months ended June 30, 2024, the Company incurred interest expense of approximately $17,000 and $42,000, respectively 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 and six months ended June 30, 2023 the Company incurred approximately $21,000 and $42,000, respectively associated with the amortization of deferred financing costs from the Credit Agreement.

 

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 and six months ended June 30, 2023, the Company incurred interest expense of approximately $25,000 and $61,000 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.

 

10

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024 and 2023

(Unaudited)

 

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”).

 

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.

 

During the three months ended June 30, 2024, the Company abandoned its plans to continue use of the leased space due to failure to receive a liquor license. Consequently, the Company exercised its early termination provision of the Lease Agreement which was not accepted by the Landlord. While attempting to settle, the Company failed to make the first recurring cash lease payment due on July 31, 2024, and as a result defaulted on the lease. Due to the abandonment of the lease, all assets related to the lease were impaired. Assets including security deposits, rent deposits and right of use assets of approximately $3,878,000 have been written off during the three months ended June 30, 2024 and are included as a component of operating expenses in the accompanying condensed consolidated statements of operations.

 

On July 26, 2024, OAC 111 Flatiron, LLC and OAC Adelphi, LLC, filed a civil action in the Supreme Court of the State of New York against MICS NY and the Company (“the Defendants”) for alleged breach of lease, seeking monetary damages including unpaid rent, future unpaid rent, and other expenses related to the lease. The complaint alleges the Defendants breached the lease in various material respects. Based on the Company’s assessment of the facts underlying the claims, the uncertainty of litigation, and the preliminary stage of the case, the Company cannot reasonably estimate the potential loss or range of loss that may result from this action.

 

Derivative Action

 

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 Company filed a motion to dismiss the complaint. Based on the Company’s assessment of the facts underlying the claims, the uncertainty of the litigation, and the preliminary stage of the case, the Company cannot reasonably estimate the potential loss or range of loss that may result from this action.

 

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 which expired on March 31, 2024. 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 $10,000 per month subject to a 3% annual adjustment.

 

11

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024 and 2023

(Unaudited)

 

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 for the three and six months ended June 30, 2024. (See Note 6).

 

Supplemental balance sheet information related to leases as of June 30, 2024 and December 31, 2023 is as follows:

 SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES   

Assets:   June 30, 2024     December 31, 2023  
Operating lease - right-of-use assets   $ 178,000     $ 3,926,000  
                 
Liabilities                
Current                
Current portion of operating leases   $ 165,000     $ 84,000  
Operating lease liabilities, net of current portion   $ 4,136,000     $ 3,925,000  

 

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

 SCHEDULE OF LEASE TERM AND DISCOUNT RATE  

    Three Months Ended     Three Months Ended     Six Months Ended     Six Months Ended  
    June 30, 2024     June 30, 2023     June 30, 2024     June 30, 2023  
Operating lease expense as a component of general and administrative expenses   $ 203,000     $ 237,000     $ 399,000     $ 483,000  
                                 
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   $ 46,000     $ 252,000     $ 91,000     $ 504,000  
                                 
Lease term and Discount Rate                                
Weighted average remaining lease term (years)     14.3       13.2                  
Weighted average discount rate     12.0 %     6.5 %                

 

Minimum future payments under all operating leases as of June 30, 2024, are as follows:

 SCHEDULE OF OPERATING LEASE MINIMUM FUTURE PAYMENTS 

Payments due by period   Amount  
2024 (remaining six months)   $ 271,000  
2025     408,000  
2026     529,000  
2027     585,000  
2028     611,000  
Thereafter     7,555,000  
Total minimum future payments   $ 9,959,000  
Less: Interest     5,658,000  
Total operating lease liabilities   $ 4,301,000  
Less: current portion of lease liabilities     165,000  
Operating lease liabilities, net of current portion   $ 4,136,000  

 

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 were no share base compensation awards issued under the 2022 Plan during the three and six months ended June 30, 2024 and 2023. There were 4,000 and 5,250 shares forfeited during the three and six months ended June 30, 2024, respectively. There were no shares forfeited during the three and six months ended June 30, 2023. As of June 30, 2024, there were 204,053 shares available to be issued under the 2022 Plan.

 

As of June 30, 2024, there was an unrecognized expense of approximately $69,000 remaining on options currently vesting over time with an approximate weighted average of twelve months remaining until these options are fully vested.

 

12

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024 and 2023

(Unaudited)

 

The vested options as of June 30, 2024, had no intrinsic value.

 

Warrants

 

Common warrants issued and outstanding as of June 30, 2024 and December 31, 2023, were 902,113. There were no changes in the warrants outstanding during the period.

 

As of June 30, 2024, the Company’s warrants by expiration date were as follows:

 

SCHEDULE OF WARRANTS EXPIRATION 

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 PER SHARE

 

Computation of basic and dilutive loss per share for the three and six months ended June 30, 2024 and 2023 are as follows:

 

SCHEDULE OF BASIC AND DILUTIVE LOSS PER SHARE 

   

For the three months ended

June 30, 2024

   

For the three months ended

June 30, 2023

   

For the six months ended

June 30, 2024

   

For the six months ended

June 30, 2023

 
Net loss   $ (6,119,000 )   $ (2,460,000 )   $ (8,486,000 )   $ (5,445,000 )
Weighted-average common shares outstanding     6,418,061       3,872,447       6,418,061       3,487,299  
Basic loss per share   $ (0.95 )   $ (0.64 )   $ (1.32 )   $ (1.56 )

 

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 and six months ended June 30, 2024 and 2023, options to purchase 108,511 and 108,343 shares of common stock, respectively and options to purchase 902,113 common stock warrants for both June 30, 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

 

For the three months ended June 30, 2024 and 2023 the Company recognized an income tax benefit of approximately $52,000 and $0, respectively. The Company is not forecasting any taxable income for the current year and had a loss before income tax benefit in the previous year. The Company’s income tax provision for the six months ended June 30, 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 and six months ended June 30, 2024 and 2023.

 

13

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 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:

 SCHEDULE OF REVENUE BY PRODUCT LINE

                         
    Three Months Ended     Six Months Ended  
Product Line   June 30, 2024     June 30, 2023     June 30, 2024     June 30, 2023  
                         
Classic Karaoke Machines   $ 1,257,000     $ 1,463,000     $ 2,308,000     $ 2,729,000  
Licensed Products     107,000       8,000       198,000       (4,000 )
SMC Kids Toys     102,000       21,000       171,000       154,000  
Microphones and Accessories     865,000       957,000       1,818,000       2,737,000  
Music and other income     109,000       176,000       371,000       392,000  
                                 
Total Net Sales   $ 2,440,000     $ 2,625,000     $ 4,866,000     $ 6,008,000  

 

Sales by geographic region for the periods presented are as follows:

 

 SCHEDULE OF SALES BY GEOGRAPHICAL REGION

    June 30, 2024     June 30, 2023     June 30, 2024     June 30, 2023  
    Three Months Ended     Six Months Ended  
    June 30, 2024     June 30, 2023     June 30, 2024     June 30, 2023  
Australia     124,000       -       124,000       -  
North America     2,316,000       2,625,000       4,742,000       6,008,000  
                                 
Total Net Sales   $ 2,440,000     $ 2,625,000     $ 4,866,000     $ 6,008,000  

 

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 June 30, 2024 and 2023, co-op promotion incentives were approximately $240,000 and $91,000, respectively. For the six months ended June 30, 2024 and 2023, co-op promotion incentives were approximately $349,000 and $264,000, 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 June 30, 2024 and December 31, 2023, was approximately $2,174,000 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. The asset is separately stated as returns asset on the condensed consolidated balance sheets. The Company’s estimated cost of returns as of June 30, 2024 and December 31, 2023, was approximately $619,000 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.

 

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 June 30, 2024, 79% 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.

 

14

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024 and 2023

(Unaudited)

 

Revenues from customers representing greater than 10% of total net sales derived from our top three customers as a percentage of net sales were 39%, 14% and 13% for the three months ended June 30, 2024. Revenues from customers representing greater than 10% of total net sales derived from one customer as a percentage of net sales was 87% for the three months ended June 30, 2023. Revenues from customers representing greater than 10% of total net sales derived from our top three customers as a percentage of net sales were 50%, 11% and 10% for the six months ended June 30, 2024. Revenues from customers representing greater than 10% of total net sales were derived from two customers as a percentage of net sales were 86% for the three months ended June 30, 2023. Revenues from customers representing greater than 10% of total net sales were derived from one customer as a percentage of net sales were 86% for the six months ended June 30, 2023.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 June 30, 2024, and 2023, the amounts earned from the subscription agreement were approximately $109,000 and $176,000, respectively. For the six months ended June 30, 2024, and 2023, the amounts earned from the subscription agreement were approximately $349,000 and $394,000, respectively. These amounts were included as a component of net sales in the accompanying condensed consolidated statements of operations. On June 30, 2024, the Company had approximately $1,000 due to Stingray. On December 31, 2023, the Company had approximately $269,000 due from Stingray for music subscription reimbursement.

 

During the three and six months ended June 30, 2024, the Company advanced $415,000 to SemiCab for working capital. As of June 30, 2024, the company had approximately $415,000 due from SemiCab. (See Note 2).

 

NOTE 14 – ASSET ACQUISITION

 

On June 11, 2024, the Company and its wholly owned subsidiary SemiCab,LLC, SemiCab, Inc., Ajesh Kapoor and Vivek Sehgal entered into the Asset Purchase Agreement pursuant to which the Seller agreed to sell and assign to the Company, and the Company agreed to purchase and assume from the Seller, substantially all the assets, and certain specified liabilities relating to the business of the Seller.

 

On July 3, 2024, the parties completed the Asset Purchase Agreement whereby the Company issued to the Seller (i) 641,806 shares of the Company’s common stock with a value of approximately $738,000 (ii) a twenty percent (20%) membership interest in SemiCab LLC. (See Note 2).

 

Pursuant to the asset acquisition agreement, the Company and Seller entered into an option agreement (the “Option Agreement”), granting the Buyer the right to acquire all of the issued and outstanding capital securities of SMCB Solutions Private Limited, a wholly owned subsidiary of the Seller, in consideration for 320,903 shares of common stock of the Company.

 

In connection with the asset acquisition agreement, effective July 3, 2024, SemiCab, LLC entered into employment agreements (the “Agreements”) with Ajesh Kapoor and Vivek Sehgal Kapoor’s agreement spans three years with an annual base salary of $140,000 for 2024, $240,000 for 2025, and $300,000 for subsequent years, and Sehgal’s agreement also spans three years with an annual base salary of $105,000 for 2024, $210,000 for 2025, $240,000 for 2026, $270,000 for 2027, and $300,000 for 2028. Both executives’ salaries are subject to annual review by the Board. They are eligible for annual performance-based bonuses contingent on specific goals set by the Board and will participate in the 2022 Equity Incentive Plan, receiving annual equity issuances and cash-based incentives tied to revenue milestones. Both are entitled to standard employee benefits, including health insurance and retirement plans.

 

15

 

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024 and 2023

(Unaudited)

 

Pro Forma Information

 

The unaudited pro forma financial information below presents the effects of the Asset Purchase Agreement as though it had been completed on January 1, 2023. The pro forma adjustments are derived from the historically reported transactions of the respective companies. The pro forma results do not include anticipated combined effects or other expected benefits of the acquisition. The pro forma results for the six months ended June 30, 2024, and 2023 reflect the combined performance of the Company and the SemiCab business for that period. The unaudited pro forma information is based on available data and certain assumptions that the Company believes are reasonable given the circumstances. However, actual results may differ materially from the assumptions used in the accompanying unaudited pro forma financial information. This selected unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not intended to represent what the actual consolidated results of operations would have been had the Asset Purchase Agreement occurred on January 1, 2023, nor does it attempt to forecast future consolidated results of operations.

 

    June 30, 2024     June 30, 2023  
    Six Months Ended  
    June 30, 2024     June 30, 2023  
Net revenue   $ 6,209,000       9,530,000  
Operating loss from continuing operations     (9,350,000 )     (6,142,000 )
Net loss     (9,690,000 )     (7,085,000 )

 

The pro forma results for the six months ended June 30, 2023, include a net increase in operating expenses of $265,000, consisting of legal and accounting expenses of approximately $215,000 associated with the acquisition of SemiCab and $50,000 in shares of SMC common stock issued to Vivek Sehgal as sign-on bonus.

 

16

 

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”).

 

17

 

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 June 30, 2024 are for the three and six month periods ended June 30, 2024 and 2023.

 

ATM Offering June 2024

 

On June 26, 2024, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with Ascendiant Capital markets, LLC, 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 $1,100,000 in shares of the Company’s common stock. On July 8, 2024, the Company entered into the First Amendment to the Sales Agreement (the “Amendment”) to increase the number of shares to be sold in the ATM Offering to $2,020,000. On August 9, 2024, the Company entered into the Second Amendment to the Sales Agreement (the “Amendment”) to increase the number of shares to be sold in the ATM Offering to $3,100,000. For the three and six months ended June 30, 2024, the Company had not yet sold any shares of its common stock from this ATM Offering. Pursuant to the agreement, the Agent is to be paid $30,000 in fees to cover legal and administrative expenses and will receive an amount equal to 3% of the gross proceeds from each sale of the Company’s share of common stock.

 

Subsequent to June 30, 2024 and through August 16, 2024(the last trading day prior to filing), the Company sold 1,657,172 shares of common stock under the ATM offering, and received net proceeds from the ATM of approximately $1,676,000 after payment of brokerage commissions and administrative fees to the agent of approximately $51,000.

 

Asset Purchase

 

On June 11, 2024, the Company and its wholly owned subsidiary SemiCab Holdings, LLC, a Nevada limited liability company (“SemiCab LLC” and collectively with the Company, the “Buyer”), SemiCab, Inc., a Delaware corporation (“SemiCab” or the “Seller”), Ajesh Kapoor and Vivek Sehgal entered into an asset purchase agreement (the “Asset Purchase Agreement”) pursuant to which the Seller agreed to sell and assign to the Company, and the Company agreed to purchase and assume from the Seller, substantially all the assets, and certain specified liabilities relating to the business of the Seller. Subject to certain exceptions set forth in the Asset Purchase Agreement, the parties agreed that the Buyer will not assume the liabilities of the Seller. SemiCab is an artificial intelligence, cloud-based collaborative transportation platform built to achieve the scalability required to predict and optimize semi-tractor trailer load efficiency.

 

On July 3, 2024, the parties closed on the asset purchase whereby the Company issued to the Seller (i) 641,806 shares of the Company’s common stock (ii) a twenty percent (20%) membership interest in SemiCab LLC.

 

Pursuant to the asset acquisition agreement, the Company and Seller entered into an option agreement (the “Option Agreement”), granting the Buyer the right to acquire all of the issued and outstanding capital securities of SMCB Solutions Private Limited, a wholly owned subsidiary of the Seller, in consideration for 320,903 shares of common stock of the Company. The Option Agreement has not been exercised through the date of this filing.

 

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. During the six months ended June 30, 2024, Jay Foreman has made a written request to register his 1,099,000 shares.

 

18

 

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.

 

During the three months ended June 30, 2024, the Company abandoned its plans to continue use of the leased space due to failure to receive a liquor license. Consequently, the Company exercised its early termination provision of the Lease Agreement which was not accepted by the Landlord. While attempting to settle, the Company failed to make the first recurring cash lease payment due on July 31, 2024, and as a result defaulted on the lease. Due to the abandonment of the lease, all assets related to the lease were impaired. Assets including security deposits, rent deposits and right of use assets of approximately $3,878,000 have been written off during the three months ended June 30, 2024 and are included as a component of operating expenses in the accompanying condensed consolidated statements of operations.

 

On July 26, 2024, OAC 111 Flatiron, LLC and OAC Adelphi, LLC, filed a civil action in the Supreme Court of the State of New York against MICS NY and the Company (“the Defendants”) for alleged breach of lease, seeking monetary damages including unpaid rent, future unpaid rent, and other expenses related to the lease. The complaint alleges the Defendants breached the lease in various material respects.

 

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 the Three Months Ended     For the Six Months Ended  
    June 30, 2024     June 30, 2023     June 30, 2024     June 30, 2023  
                         
Net Sales     100.0 %     100.0 %     100.0 %     100.0 %
Cost of Goods Sold     86.7 %     79.8 %     83.0 %     77.5 %
Operating Expenses     265.5 %     112.8 %     190.4 %     98.7 %
Loss from Operations     -252.2 %     -92.6 %     -173.4 %     -76.2 %
Other (Expenses) Income, Net     -0.7 %     -1.1 %     -0.9 %     10.6 %
Loss Before Income Tax Benefit (Provision)     -252.9 %     -93.7 %     -174.3 %     -65.6 %
Income Tax Benefit (Provision)     2.1 %     0.0 %     0.0 %     -25.0 %
Net Loss     -250.8 %     -93.7 %     -174.3 %     -90.6 %

 

Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023

 

Net Sales

 

Net sales for the three months ended June 30, 2024, decreased to approximately $2,440,000 from approximately $2,625,000 representing a decrease of approximately $185,000 (7.0 %) as compared to the three months ended June 30, 2023. The decrease was primarily due to lower overall sell-through results during the past holiday season, mostly with our largest customer, Walmart, which in turn diminished inventory restocking requirements during the first six months of the calendar year which is historically off-peak shipping season.

 

Gross Profit

 

Gross profit for the three months ended June 30, 2024 decreased to approximately $324,000 from approximately $529,000 representing a decrease of approximately $205,000 (38.8%) as compared to the three months ended June 30, 2023. Gross margins for the three months ended June 30, 2024 were 13.3% as compared to 20.2% for the three months ended June 30, 2023. Approximately $260,000 of the decrease in gross profit was primarily due to increased sales in excess inventory which yielded significantly lower margin than current models sold and was offset by a decrease in expenses of approximately $57,000 associated with the miscellaneous logistics costs related to the timing of receipt of new goods.

 

19

 

Operating Expenses

 

During the three months ended June 30, 2024, total operating expenses increased to approximately $6,478,000, compared to approximately $2,960,000 during the three months ended June 30, 2023. This represents an increase in total operating expenses of approximately $3,518,000 from the three months ended June 30, 2023. The increase in operating expenses was primarily due to the write-off of impaired operating lease assets of approximately $3,878,000 related to the hospitality lease (See Hospitality Lease in Recent Developments). This increase in operating expenses was offset by a decrease in seasonal bad debt reserves of approximately $156,000, a decrease in logistics costs of approximately $124,000 associated with the closing of the warehouse operation and outsourcing of logistics to a third-party logistics company, acceleration of depreciation expense of approximately $130,000 recognized in the prior year on impaired fixed assets associated with the closing of the warehouse.

 

Other Expenses, net

 

Other expense consisted of interest expense of approximately $17,000 for the three months ended June 30, 2024, as compared to interest expense of approximately $29,000 for the three months ended June 30, 2023.

 

Income Taxes

 

For the three months ended June 30, 2024 and 2023 the Company recognized a tax benefit of approximately $52,000 and $0, respectively. The Company is not recognizing any tax provision for the six months ended June 30, 2024 as the Company is not forecasting any taxable income for the current year and had a loss before income tax benefit in the previous year. The Company’s income tax expense differs for the expected tax benefit based on statutory rates primarily due history of losses and forecasts that suggest the Company will not be able to utilize any deferred tax assets in the future.

 

Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023

 

Net Sales

 

Net sales for the six months ended June 30, 2024, decreased to approximately $4,866,000 from approximately $6,008,000 representing a decrease of approximately $1,142,000 (19.0 %) as compared to the six months ended June 30, 2023. The decrease was primarily due to lower overall sell-through results during the past holiday season, mostly with our largest customer, Walmart, which in turn diminished inventory restocking requirements during the first six months of the calendar year which is historically off-peak shipping season.

 

Gross Profit

 

Gross profit for the six months ended June 30, 2024 decreased to approximately $826,000 from approximately $1,349,000 representing a decrease of approximately $523,000 (38.8%) as compared to the six months ended June 30, 2023. Gross margins for the six months ended June 30, 2024 were 17.0%, as compared to 22.5% for the six months ended June 30, 2023. There was a decrease of approximately $276,000 primarily due to lower gross margins caused by increased sales mix of excess inventory yielding margins that were less than current models sold. The remaining decrease in net sales as explained above accounted most of the remaining $267,000 of the decrease in gross profit.

 

20

 

Operating Expenses

 

During the six months ended June 30, 2024, total operating expenses increased to approximately $9,267,000 compared to approximately $5,927,000 during the six months ended June 30, 2023. This represents an increase in total operating expenses of approximately $3,340,000 from the six months ended June 30, 2023. The increase in operating expenses was primarily due to the write-off of impaired operating lease assets of approximately $3,878,000 related to the hospitality lease (See Hospitality Lease in Recent Developments). The increase in operating expenses was primarily attributable to a seasonal decrease in bad debt reserves of approximately $81,000, acceleration of depreciation expense of approximately $133,000 recognized in the prior year on impaired fixed assets associated with the closing of the logistics warehouse, a decrease in stock based compensation expense of approximately $101,000, reduced costs in selling expense of approximately $81,000 due to significantly lower inbound freight costs related to the reduced volume of product returns and a decrease in travel and entertainment of approximately $81,000.

 

Other (Expenses) Income, net

 

Other expense consisted of interest expense of approximately $45,000 for the six months ended June 30, 2024 as compared to other income, net of approximately $635,000. During the six months ended June 30, 2023, there was a one-time refund of approximately $704,000 from the Employee Retention Credit program offset by interest expense of approximately $69,000 which accounted for the increase in other income, net.

 

Income Taxes

 

For the six months ended June 30, 2024, the Company did not recognize any income tax provision as the Company is not forecasting any taxable income for the current year. The Company’s income tax provision for the six months ended June 30, 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. The Company’s income tax expense differs for the expected tax benefit/expense based on statutory rates primarily due to full valuation allowance for all of its subsidiaries for the six months ended June 30, 2023.

 

Liquidity and Capital Resources

 

The Company incurred a net loss of approximately $8,486,000 for the six-month period ended June 30, 2024, and has a history of recurring losses.

 

On June 30, 2024, we had cash on hand of approximately $1,245,000 as compared to approximately $6,703,000 on December 31, 2023. The decrease in cash on hand of approximately $5,458,000 from December 31, 2023, was primarily due to approximately $5,410,000 used in operations of which approximately $4,711,000 was used to seasonally pay down accounts payable and accrued expenses. There were seasonal reductions in customer deposits and refunds to customers of approximately $1,221,000 and a reduction of approximately $1,217,000 in reserves for sales returns as customers seasonally returned defective and overstock goods from the past holiday season during the six months ended June 30, 2024. These uses of cash for operating activities were offset by a seasonal reduction of approximately $5,000,000 in accounts receivable of which a significant amount of the reduction was offset by customers netting credit amounts due to them from returns and co-op incentive programs against open invoices. As of June 30, 2024, our working capital was approximately $2,688,000.

 

On June 30, 2023, we had cash on hand of approximately $1,890,000 as compared to $2,795,000 as of December 31, 2022. The decrease in cash on hand of approximately $905,000 was primarily due to approximately $614,000 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, approximately $137,000 used investing activities for the purchase of molds and tooling and approximately $154,000 used in financing activities. While the Company received proceeds from the exercise of common stock warrants and issuance of common stock (net of offering costs) of approximately $1,640,000, this increase in financing activities was offset by repayment of revolving credit lines of credit and other debt of approximately $1,794,000 during the six months ended June 30, 2024.

 

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.

 

21

 

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.

 

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.

 

22

 

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.

 

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 June 30, 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

 

On July 26, 2024, OAC 111 Flatiron, LLC and OAC Adelphi, LLC, filed a civil action in the Supreme Court of the State of New York against MICS Nomad LLC, a subsidiary of the Company (“MICS NY”), and the Company (“the Defendants”) for alleged breach of lease, seeking monetary damages including unpaid rent, future unpaid rent, and other expenses related to the lease. The complaint alleges the Defendants breached the lease in various material respects. The Defendants have not yet been served in this matter.

 

There were no other material changes during the quarter ended June 30, 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 6 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.

 

23

 

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 June 30, 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.

 

ITEM 6. EXHIBITS

 

2.1   Asset Purchase Agreement dated June 11, 2024, between The Singing Machine Company, Inc., SemiCab, Inc. and SemiCab Holdings, LLC (incorporated by reference to Exhibit 2.1 in the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 12, 2024).
     
2.2   Amendment No. 1 to Asset Purchase Agreement dated July 1, 2024, among The Singing Machine Company, Inc., SemiCab, Inc. and SemiCab Holdings LLC (incorporated by reference to Exhibit 2.2 in the Singing Machine’s Current Report on Form 8-K filed with the SEC on July 5, 2024).
     
10.1   Operating Agreement between The Singing Machine Company, Inc., SemiCab Holdings, LLC and SemiCab, Inc. (incorporated by reference to Exhibit 10.1 in the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 12, 2024).
     
10.2   At-The-Market Issuance Sales Agreement by and between The Singing Machine Company, Inc. and Ascendiant Capital Markets, LLC, dated June 26, 2024 (incorporated by reference to Exhibit 1.1 in the Singing Machine’s Current Report on Form 8-K filed with the SEC on June 27, 2024).
     
10.3   Amendment to At-The-Market Issuance Sales Agreement by and between The Singing Machine Company, Inc. and Ascendiant Capital Markets, LLC, dated July 8, 2024 (incorporated by reference to Exhibit 10.1 in the Singing Machine’s Current Report on Form 8-K filed with the SEC on July 9, 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.

 

24

 

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: August 19, 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)

 

25

 

EX-31.1 2 ex31-1.htm

 

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 June 30, 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: August 19, 2024 /s/ Gary Atkinson
  Gary Atkinson
  Chief Executive Officer
  (Principal Executive Officer)

 

 

 

EX-31.2 3 ex31-2.htm

 

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 June 30, 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: August 19, 2024 /s/ Richard Perez
  Richard Perez
  Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

 

 

EX-32.1 4 ex32-1.htm

 

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 June 30, 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: August 19, 2024 By: /s/ Gary Atkinson
  Name: Gary Atkinson
  Title: Chief Executive Officer
    (Principal Executive Officer)
     
Date: August 19, 2024 By: /s/ Richard Perez
  Name: Richard Perez
  Title: Chief Financial Officer
    (Principal Financial and Accounting Officer)