The Singing Machine pany(MICS) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements, including balance sheets, operations, cash flows, equity, and related notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights | Metric | Dec 31, 2019 (Unaudited) ($) | Mar 31, 2019 ($) | Change ($) | |---|---|---|---| | Total Current Assets | $21,447,885 | $10,818,454 | +$10,629,431 | | Total Assets | $24,079,150 | $12,193,145 | +$11,886,005 | | Total Current Liabilities | $15,958,657 | $3,675,491 | +$12,283,166 | | Total Liabilities | $16,542,397 | $3,692,990 | +$12,849,407 | | Total Shareholders' Equity | $7,536,753 | $8,500,155 | -$963,402 | Condensed Consolidated Statements of Operations Statements of Operations (Three Months Ended December 31) | Metric | 2019 ($) | 2018 ($) | Change (YoY) ($) | |---|---|---|---| | Net Sales | $15,519,516 | $19,452,450 | -$3,932,934 (-20.2%) | | Gross Profit | $4,032,996 | $5,626,274 | -$1,593,278 (-28.3%) | | Operating Expenses | $4,922,070 | $3,825,944 | +$1,096,126 (+28.6%) | | (Loss) Income from Operations | $(889,074) | $1,800,330 | -$2,689,404 | | Net (Loss) Income | $(757,949) | $1,290,013 | -$2,047,962 | | Basic EPS | $(0.02) | $0.03 | -$0.05 | Statements of Operations (Nine Months Ended December 31) | Metric | 2019 ($) | 2018 ($) | Change (YoY) ($) | |---|---|---|---| | Net Sales | $40,410,398 | $45,593,906 | -$5,183,508 (-11.4%) | | Cost of Goods Sold | $29,747,376 | $34,369,467 | -$4,622,091 (-13.5%) | | Gross Profit | $10,663,022 | $11,224,439 | -$561,417 (-5.0%) | | Operating Expenses | $11,794,866 | $9,083,858 | +$2,711,008 (+29.8%) | | (Loss) Income from Operations | $(1,131,844) | $2,140,581 | -$3,272,425 | | Net (Loss) Income | $(1,003,308) | $1,473,291 | -$2,476,599 | | Basic EPS | $(0.03) | $0.04 | -$0.07 | Condensed Consolidated Statements of Cash Flows Statements of Cash Flows (Nine Months Ended December 31) | Metric | 2019 ($) | 2018 ($) | Change (YoY) ($) | |---|---|---|---| | Net cash provided by (used in) operating activities | $684,275 | $(1,498,348) | +$2,182,623 | | Net cash used in investing activities | $(517,546) | $(288,740) | -$228,806 | | Net cash provided by financing activities | $140,471 | $2,554,425 | -$2,413,954 | | Net change in cash | $307,200 | $767,337 | -$460,137 | | Cash at end of period | $518,608 | $1,581,245 | -$1,062,637 | Condensed Consolidated Statements of Shareholders' Equity Shareholders' Equity (December 31, 2019) | Component | Amount ($) | |---|---| | Common Stock | $385,577 | | Additional Paid-in Capital | $19,724,040 | | Accumulated Deficit | $(12,572,864) | | Total Shareholders' Equity | $7,536,753 | - For the nine months ended December 31, 2019, the company reported a net loss of $1,003,308, alongside increases in additional paid-in capital from employee stock compensation ($15,006), collection of subscription receivable ($2,200), exercise of stock options ($10,200), and issuance of common stock to directors ($12,500)[19] Notes to Condensed Consolidated Financial Statements NOTE 1 – BASIS OF PRESENTATION - The Singing Machine Company, Inc. and its wholly-owned subsidiaries are primarily engaged in the development, marketing, and sale of consumer karaoke audio systems, accessories, musical instruments, and musical recordings to retailers and distributors[22] NOTE 2 – LIQUIDITY - The company incurred a net loss of approximately $1,003,000 for the nine months ended December 31, 2019, compared to net income of approximately $1,473,000 in the prior year[26] - A major customer charged back approximately $1,691,000 for severely water-damaged goods, leading to a recorded insurance claim receivable of approximately $1,286,000, with uncertain collection timing[23] - The company defaulted on its Revolving Credit Facility due to non-compliance with the fixed charge coverage ratio and did not meet the required EBITDA hurdle for Q3 2019, leading to a Forbearance Agreement with PNC Bank and a 0.5% loan pricing increase[24][25][26] - To address liquidity, the company plans to reduce operating expenses, negotiate renewal of the Revolving Credit Facility, seek alternative financing, and utilize dynamic discount programs[27] NOTE 3 - SUMMARY OF ACCOUNTING POLICIES - Revenue is recognized when goods are delivered and control is transferred to the customer, with no financing elements and payment terms typically less than 120 days[44] Revenue by Product Line (Nine Months Ended December 31) | Product Line | 12/31/2019 ($) | 12/31/2018 ($) | Change (YoY) ($) | |---|---|---|---| | Classic Karaoke Machines | $29,067,908 | $28,014,115 | +$1,053,793 | | Download Karaoke Machines | $5,534,065 | $12,750,096 | -$7,216,031 | | SMC Kids Toys | $967,939 | $2,036,623 | -$1,068,684 | | Music and Accessories | $4,840,486 | $2,793,072 | +$2,047,414 | | Total Net Sales | $40,410,398 | $45,593,906 | -$5,183,508 | - The company adopted ASU 2016-02, Topic 842, 'Leases' on April 1, 2019, requiring lessees to recognize right-of-use assets and lease liabilities on the balance sheet for leases longer than twelve months[58] NOTE 4 - INVENTORIES, NET Inventories, Net (December 31, 2