What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-15 compared with 2023-11-20 · 145 added, 150 removed, 58 unchanged (84% of the section changed)

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Such risks and uncertainties include

those described throughout this report and our Annual Report on Form 10-K for the year ended March 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 that disclose risks and uncertainties that may

affect our business.

The forward-looking statements in this Form 10-Q do not reflect the potential impact of any divestitures, mergers,

acquisitions, or other business combinations that had not been completed as of the date of filing of this Quarterly Report on Form 10-Q.

In addition, 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.

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.

should read the following management’s discussion and analysis of financial condition and results of operations in conjunction

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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 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”)

on July 14, 2023.

Condition and Results of Operations included in our Transition Report on Form 10-KT, filed with the SEC on April 15, 2024.

this Quarterly Report, unless the context requires otherwise, references to the “Company,” “Singing Machine,”

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NY” refers to MICS Nomad, LLC, a Delaware limited liability company.

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.

Singing Machine Company, Inc., a Delaware corporation (the “Company” or “The Singing Machine”) is a consumer

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music and record stores, and specialty stores.

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”).

Private Placement

On November 20, 2023, the Company the

Company entered into an agreement to sell $2,000,000 in common stock through a private placement of common stock (the “Private

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”).

in Fiscal Year

2023, our Board of Directors approved a change in our fiscal year end from March 31 to December 31.

Our results of operations, cash flows,

and all transactions impacting shareholders’ equity presented in this Quarterly Report on Form 10-Q as of March 31, 2024 are for

the three-month period ended March 31, 2024 and March 31, 2023.

Credit Facility

March 28, 2024, the Company and Oxford Commercial Finance, a Michigan banking corporation, (referred to as “Oxford”) entered

into a Loan Agreement (the “Loan Agreement”) and related Revolving Credit Note (the “Note”) for a $2 million

revolving line of credit (the “Oxford Line of Credit”).

Availability under the Oxford Line of Credit is determined monthly

by a borrowing base comprised of a percentage of eligible accounts receivable of the Company as set forth in the Loan Agreement.

connection with the Oxford Line of Credit, the Company is required to:

(a) Pay to Oxford a loan fee in the amount of one percent (1%)

of the Revolving Loan Cap (as defined in the Loan Agreement);

(b) Pay Field Exam (as defined in the Loan Agreement) expenses to Oxford;

(c) Maintain an average outstanding principal balance of the loan for each month in the amount of Five Hundred Seventy Thousand Dollars

($570,000) (“Minimum Loan Balance”).

If the actual average outstanding principal balance of the loan in any month is less

than the Minimum Loan Balance, the Company must pay interest for such month calculated on the Minimum Loan Balance;

(d) Pay an early

exit fee to Oxford, in the event the Company terminates the Loan Agreement and repays the obligations under the Note in full, as liquidated

damages and not as a penalty, in an amount equal to:

(i) if prior to the one year anniversary date of the Note, two percent (2.00%) of

the Revolving Loan Cap (as defined in the Loan Agreement) plus any fees which are due or to become due under the Loan Agreement, and

(ii) if on and after the one year anniversary date of the Note, but prior to the two year anniversary date of the Note, two percent (2.00%)

of the Revolving Loan Cap plus any fees which are due or to become due under the Loan Agreement;

and (e) Pay any and all third party

expenses, including the reasonable fees and disbursements of Oxford’s counsel, in connection with the preparation, administration

and enforcement of the Line of Credit agreements or the other loan documents.

revolving credit facility bears interest of the Prime Rate (the interest reported daily in the Wall Street Journal) plus 2.5%, but in

any event, not less than 10%.

to the Security Agreement (the “Security Agreement”) entered into by and between the Company and Oxford on March 28, 2024,

the obligations under the Loan Agreement are secured by all of the assets of the Company, presently owned or later acquired, and all

cash and non-cash proceeds thereof (including, without limitation, insurance proceeds).

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.

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 2,199,000 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.

of Debt agreement

On November 17, 2023, the Company

voluntarily terminated the asset-backed credit facility with Fifth Third Bank as the Company could not comply with the debt coverage

financial covenant effective September 30, 2023.

Change in Fiscal Year.

September 22, 2023, the Board of Directors approved a change in the fiscal year end of the Company from March 31st to December 31st.

Following such change, the date of the Company’s next fiscal year end is December 31, 2023 upon filing of our transition report.

Consequently, the Company intends to file a transition report on Form 10-K for the period from April 1, 2023 to December 31, 2023.

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.

August 23, 2023, MICS NY entered into an Agreement of Lease (the “Lease Agreement”) with OAC 111 Flatiron, LLC and OAC Adelphi,

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York, New York (the “Premises”).

MICS NY intends to use the Premises as a new karaoke venue, offering immersive karaoke technology

and audio-visual capabilities, with restaurant and bar offerings.

term of the Lease Agreement is for fifteen (15) years, or on such earlier date upon which the term shall expire, be canceled or terminated

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.

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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

of New Subsidiaries

July 23, 2023, the Company formed three new subsidiaries:

MICS Hospitality Holdings, Inc., a Delaware corporation, MICS Hospitality Management,

LLC, a Delaware limited liability company, and MICS Nomad, LLC, a Delaware limited liability company, all of which were formed to support

and operate the new hospitality business segment.

March 2024, the Company initiated the termination of this lease under certain provisions made available under the Lease Agreement.

Landlord and the Company are in active discussions as to the terms of the lease termination however as of this filing, it is too early

in the negotiation process to estimate any potential loss, if any, related to the lease termination process.

February 15, 2023, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with Aegis

Capital Corp, as sales agent (the “Agent”), pursuant to which the Company could offer and sell, from time to time, through

the Agent (the “ATM Offering”), up to approximately $1.8 million in shares of the Company’s common stock.

received net proceeds of approximately $1,690,000 after payment of brokerage commissions and administrative fees to the agent of approximately

The ATM Offering closed on May 12, 2023.

the Agent (the “ATM Offering”), up to approximately $1,800,000 in shares of the Company’s common stock.

For the three

months ended March 31, 2024 and 2023, the Company received net proceeds of approximately $0 and $36,000, respectively, after payment

of brokerage commissions and administrative fees to the agent.

As of May 12, 2023, the Company terminated the Sales Agreement.

of Operations

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For Three Months Ended

For Six Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

Cost of Goods Sold

Operating Expenses

Selling expenses

General and administrative expenses

Depreciation and amortization

Total Operating Expenses

Income (Loss) from Operations

Other Income (Expenses)

Gain on disposal of fixed assets

Interest expense

Finance costs

Total Other (Expenses) Income, net

Income (Loss) Before Income Tax Benefit

Income (Provision) Benefit

Net Income (Loss)

Ended September 30, 2023 Compared to the Quarter Ended September 30, 2022

sales for the three months ended September 30, 2023 decreased to approximately $15,931,000, from approximately $17,114,000 representing

a decrease of approximately $1,183,000 (6.9%) as compared to the three months ended September 30, 2022.

The decrease in net sales was

primarily due to an estimated $913,000 increase in accrued co-op incentives based on promotional programs planned for the upcoming holiday

profit for the three months ended September 30, 2023 decreased to approximately $3,733,000 from approximately $3,853,000, representing

a decrease of approximately $120,000 as compared to the three months ended September 30, 2022.

There was a decrease in gross profit of

approximately $266,000 primarily due to the decrease in net sales as described above.

This decrease was offset by improved gross margins

from 22.5% to 23.4%, which generated approximately $143,000 in higher gross income than if the prior periods’ margins had remained

The improvement in gross margins was in part due to the introduction of several new products that normally yield higher margins

and reductions in product cost due to significant decreases in inbound freight.

the three months ended September 30, 2023, total operating expenses increased to approximately $3,628,000, compared to approximately

$3,268,000 during the three months ended September 30, 2022.

This represents an increase in total operating expenses of approximately

$360,000 (11.0%) from the three months ended September 30, 2022.

There was an increase in selling expenses of approximately $269,000

during the three months ended September 30, 2023, as compared to the same period in the prior year primarily due to a one-time marketing

promotion event cost of approximately $200,000 that was expensed during the three months ended September 30, 2023.

The remaining increase

was primarily due to an increase in legal and professional expenses related to the launch of the Company’s emerging hospitality

expenses were approximately $8,000 for the three months ended September 30, 2023, as compared to approximately $186,000 in other expenses

for the three months ended September 30, 2022.

There was a reduction in expenses related to lower interest and financing costs of approximately

$134,000 and a gain on sale of warehouse equipment of approximately $44,000 associated with the closing of the California warehouse facility

and disposal of warehouse equipment.

the three months ended September 30, 2023, we did not recognize any income tax provision or benefit as the Company is not

forecasting any taxable income for the current fiscal year.

The Company’s income tax provision for the three months ended

September 30, 2022, was approximately $102,000.

The Company’s income tax expense differs from the expected tax benefit/expense

based on statutory rates primarily due to a full valuation allowance for all of its subsidiaries for the three months ended

September 30, 2023 and the utilization of certain deferred tax assets and credits for the three months ended September 30,

Months Ended September 30, 2023 Compared to the Six Months Ended September 30, 2022

sales for the six months ended September 30, 2023 decreased to approximately $18,556,000, from approximately $28,806,000, representing

a decrease of approximately $10,250,000 (35.6%) as compared to the six months ended September 30, 2022.

The decrease in net sales was

primarily due to an initial product set order for approximately $3,140,000 by our largest customer in the first quarter of fiscal 2022.

This was largely a one-time event that represented 35% of the decrease in gross sales recognized during the six months ended September

The remaining decrease of approximately $5,713,000 was primarily due to change in buying demand from specific customers.

customer was the largest contributing factor to this development, and we believe this was primarily due to a reduction in the total number

of product lines carried by this customer during the 2022 holiday season, as well as a relocation of the majority of the product within

the customer’s retail layout.

We also experienced a decrease in demand from a second customer, which was more than offset by new

demand from a customer in Canada, which has been a rapidly growing new account for us.

All other customer demand levels remained largely

in line with expectations.

profit for the six months ended September 30, 2023 decreased to approximately $4,583,000, from approximately $6,943,000, representing

a decrease of approximately $2,360,000 as compared to the six months ended September 30, 2022.

The decrease in gross profit was primarily

due to the decrease in net sales as discussed in net sales above.

the six months ended September 30, 2023, total operating expenses increased to approximately $6,907,000 compared to approximately $6,211,000

during the six months ended September 30, 2022.

This represents an increase in total operating expenses of approximately $696,000 (11.2%)

from the six months ended September 30, 2022.

The increase in operating expenses is primarily due approximately $575,000 in professional,

legal and rent expenses for the launch of the Company’s emerging hospitality segment during the six months ended September 30,

2023 as compared to the same period in the prior year.

There was also a one-time marketing promotion event cost of approximately $200,000

that was expensed during the six months ended September 30, 2023.

expenses were approximately $37,000 for the six months ended September 30, 2023, as compared to approximately $354,000 in other expenses

for the six months ended September 30, 2022.

There was a reduction in expenses related to lower interest and financing costs of approximately

$272,000 and a gain on sale of warehouse equipment of approximately $44,000 associated with the closing of the California warehouse facility

and disposal of warehouse equipment.

the six months ended September 30, 2023, we did not recognize any income tax provision or benefit as the company is not forecasting

any taxable income for the current fiscal year.

The Company’s income tax provision for the six months ended September 30, 2022,

approximately $97,000.

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 six months ended September 30, 2023 and the utilization

of certain deferred tax assets and credits for the three months ended September 30, 2022.

Loss from Operations

Other (Expenses) Income, Net

Loss Before Income Tax Provision

Income Tax Provision

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

sales for the three months ended March 31, 2024, decreased to approximately $2,426,000 from approximately $3,383,000 representing a decrease

of approximately $957,000 (28.3 %) as compared to the three months ended March 31, 2023.

The decrease was primarily due to lower overall

sell-through results during the holiday season, largely with our largest customer, Walmart, which in turn diminished inventory restocking

need immediately after the holiday retail season.

profit for the three months ended March 31, 2024 decreased to approximately $502,000 from approximately $819,000 representing a decrease

of approximately $317,000 (38.7%) as compared to the three months ended March 31, 2023.

Gross margins for the three months ended March

31, 2024 were 20.7%, as compared to 24.2% for the three months ended March 31, 2023.

Approximately $86,000 was due to lower gross margins,

which was primarily caused by a $294,000 increase in repair costs during the period.

The remaining $231,000 reduction in gross income

was due to the reduction in sales in the first quarter of 2024 as compared to the same period in 2023.

the three months ended March 31, 2024, total operating expenses decreased to approximately $2,789,000, compared to approximately $2,965,000

during the three months ended March 31, 2023.

This represents a decrease in total operating expenses of approximately $176,000 (5.9%)

from the three months ended March 31, 2023.

The decrease in operating expenses was attributable to a decrease in selling expenses due

to the decrease in commissionable sales.

(Expenses) Income, net

expense consisted of interest expense of approximately $28,000 for the three months ended March 31, 2024, as compared to other income,

net of approximately $663,000 for the three months ended March 31, 2023.

During the three months ended March 31, 2023 there was a one-time

refund of approximately $704,000 from the Employee Retention Credit program offset by interest expense of approximately $41,000 which

accounted for the increase in other income, net.

Company’s income tax provision for the three months ended March 31, 2024, was approximately $52,000 due to income taxes due on

amended federal tax returns filed for 2020 and 2021 which took into account the one-time refunds received from the Employee Retention

Credit program.

The Company’s income tax provision for the three months ended March 31, 2023, was approximately $1,502,000 as the

Company recognized a full valuation allowance on all of its deferred tax assets based on the recent history of losses and forecasts that

suggested the Company would not be able to utilize the deferred tax assets in the future.

and Capital Resources

Company reported a net loss of approximately $2,362,000 and used cash in operating activities of approximately $1,174,000 for the

six months ended September 30, 2023.

The Company had cash on hand of approximately $3,213,000 as of September 30, 2023.

to this liquidity, the Company also a had positive working capital position (excluding cash) of approximately $5,500,000 as of

September 30, 2023, and no material long or short-term indebtedness other than unsecured accounts payable and accrued

Company believes that its cash on hand, cash received from the Private Placement, working capital (excluding cash), and cash

expected to be generated from its operating forecast will be adequate to meet the Company’s liquidity requirements for at

least twelve months from the date of this report.

While the Company is optimistic that it will be successful in these

efforts to achieve its plan, there can be no assurance that the Company will be successful in doing so.

Accounting Policies

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

March 31, 2024, we had cash on hand of approximately $4,125,000 as compared to approximately $6,703,000 as of December 31, 2023.

increase in cash on hand of approximately $2,578,000 from December 31, 2023, was primarily due to approximately $2,557,000 used in

operations primarily due to off-peak seasonal settlement of accounts receivable offset by seasonal decreases in accounts payable

(primarily to factories), accrued expenses related to seasonal accruals for estimated returned goods customer refunds and co-op

incentive program expenses.

As of March 31, 2024, our working capital was approximately $4,887,000.

March 31, 2023, we had cash on hand of approximately $2,895,000 as compared to $2,795,000 as of December 31, 2022.

The increase in

cash on hand of approximately $100,000 was primarily due to approximately $1,739,000 provided by financing activities primarily due

to borrowings from our credit facility with Fifth Third Bank and offset by approximately $1,934,000 in net cash used in operating

activities primarily due to off-peak seasonal settlement of accounts receivable offset by seasonal increases in accounts payable,

accrued expenses related to seasonal accruals for estimated returned goods, co-op incentive program expenses and customer refunds,

and approximately $95,000 used in investing activities for the purchase of molds an tooling.

of March 31, 2024, the Company’s cash balance was approximately $4,125,000.

Based on cash flow projections from operating and

financing activities and the existing balance of cash, management is of the opinion that the Company has insufficient funds to

sustain operations for at least one year after the date of this report, and it may not be able to meet its payment obligations from

operations and related commitments, if the Company is not able to obtain outside financing to allow the Company to continue as a

going concern.

Based on these factors, the Company has substantial doubt that it will continue as a going concern for the twelve

months following the issuance date of the financial statements included elsewhere in this report.

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.

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

Accounting Estimates

interim financial statements were prepared in accordance with United States generally accepted accounting principles, which require management

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The critical accounting estimates and assumptions

have not materially changed from those identified in our Annual Report for the fiscal year ended March 31, 2023.

have not materially changed from those identified in our Transition Report for the period ended December 31, 2023.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis