The Singing Machine pany(MICS) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, for the periods ended September 30, 2023, and 2022 Condensed Consolidated Balance Sheet Highlights | Balance Sheet Item | Sep 30, 2023 (Unaudited) ($) | Mar 31, 2023 ($) | | :--- | :--- | :--- | | Total Current Assets | $27,777,305 | $15,199,465 | | Total Assets | $32,583,312 | $16,648,597 | | Total Current Liabilities | $19,065,409 | $6,125,567 | | Total Liabilities | $22,905,368 | $6,317,552 | | Total Shareholders' Equity | $9,677,944 | $10,331,045 | Condensed Consolidated Statements of Operations Highlights | Metric | Three Months Ended Sep 30, 2023 ($) | Three Months Ended Sep 30, 2022 ($) | Six Months Ended Sep 30, 2023 ($) | Six Months Ended Sep 30, 2022 ($) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $15,930,563 | $17,113,636 | $18,555,566 | $28,805,690 | | Gross Profit | $3,733,886 | $3,853,019 | $4,582,736 | $6,942,552 | | Income (Loss) from Operations | $105,950 | $584,651 | $(2,324,786) | $731,493 | | Net Income (Loss) | $97,535 | $296,467 | $(2,362,146) | $280,464 | | Diluted EPS | $0.02 | $0.08 | $(0.58) | $0.09 | Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended) | Cash Flow Activity | Sep 30, 2023 ($) | Sep 30, 2022 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,173,821) | $(3,580,205) | | Net cash used in investing activities | $(14,118) | $(87,801) | | Net cash provided by financing activities | $1,505,929 | $4,356,206 | | Net change in cash | $317,990 | $688,200 | | Cash at end of period | $3,212,564 | $2,978,683 | Notes to Condensed Consolidated Financial Statements These notes detail recent corporate developments, liquidity, revenue breakdown, financing arrangements, and significant customer concentrations - On November 20, 2023, the company completed a $2 million private placement of common stock with two affiliates at $0.91 per share, raising net proceeds of approximately $1.9 million[22] - The company entered into a 15-year lease agreement on August 23, 2023, for a new 10,000 sq. ft. karaoke venue in New York City, signaling an expansion into the hospitality sector[23] - For the six months ended September 30, 2023, the company reported a net loss of approximately $2.4 million and used $1.2 million in cash from operations; management believes existing cash, private placement proceeds, and working capital are sufficient for the next twelve months[25][26] Disaggregated Revenue by Product Line (Six Months Ended) | Product Line | Sep 30, 2023 ($) | Sep 30, 2022 ($) | | :--- | :--- | :--- | | Classic Karaoke Machines | $8,461,000 | $14,343,000 | | Microphones and Accessories | $1,885,000 | $5,110,000 | | Streaming Karaoke Machines | $7,840,000 | $7,748,000 | | SMC Kids Toys | $327,000 | $1,557,000 | | Licensed Products | $43,000 | $48,000 | | Total Net Sales | $18,556,000 | $28,806,000 | - On November 17, 2023, the company voluntarily terminated its asset-backed revolving credit facility with Fifth Third Financial Corporation due to non-compliance with a debt coverage financial covenant[37][43] - For the six months ended September 30, 2023, three customers accounted for 38%, 20%, and 18% of net sales, and as of the same date, two customers represented 44% and 28% of total accounts receivable, indicating significant customer concentration risk[71][73] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, including sales decline, expense increases from a new hospitality segment, and liquidity, for the periods ended September 30, 2023 - The company announced a change in its fiscal year end from March 31st to December 31st, effective starting with the period ending December 31, 2023[84] - To support its new hospitality business segment, the company formed three new subsidiaries in July 2023: MICS Hospitality Holdings, Inc., MICS Hospitality Management, LLC, and MICS Nomad, LLC[87] Results of Operations - Quarter Ended September 30, 2023 vs 2022 Q3 net sales decreased by 6.9% to $15.9 million due to increased co-op incentives, while operating expenses rose 11.0% from marketing and new hospitality segment costs Q2 Financial Comparison (Three Months Ended Sep 30) | Metric | 2023 ($) | 2022 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $15,931,000 | $17,114,000 | (6.9%) | | Gross Profit | $3,733,000 | $3,853,000 | (3.1%) | | Operating Expenses | $3,628,000 | $3,268,000 | 11.0% | - The decrease in net sales was primarily attributed to an estimated $913,000 increase in accrued co-op incentives for holiday promotions[90] - Operating expenses increased mainly due to a one-time $200,000 marketing promotion and expenses related to launching the new hospitality segment[93] Results of Operations - Six Months Ended September 30, 2023 vs 2022 H1 net sales significantly decreased by 35.6% to $18.6 million due to a prior-year one-time order and shifts in customer demand, while operating expenses rose 11.2% from new hospitality segment launch costs H1 Financial Comparison (Six Months Ended Sep 30) | Metric | 2023 ($) | 2022 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $18,556,000 | $28,806,000 | (35.6%) | | Gross Profit | $4,583,000 | $6,943,000 | (34.0%) | | Operating Expenses | $6,907,000 | $6,211,000 | 11.2% | - The significant drop in net sales was attributed to a large, one-time $3.14 million order in the prior year's first quarter and a shift in buying demand from certain key customers[96] - The increase in operating expenses was primarily due to approximately $575,000 in professional, legal, and rent expenses for the launch of the Company's emerging hospitality segment[98] Liquidity and Capital Resources As of September 30, 2023, the company held $3.2 million in cash and $5.5 million in positive working capital, with management confident in sufficient liquidity for the next twelve months Liquidity Position as of September 30, 2023 | Metric | Amount ($) | | :--- | :--- | | Cash on hand | $3,213,000 | | Net loss (Six months ended) | $(2,362,000) | | Cash used in operations (Six months ended) | $(1,174,000) | | Positive working capital (excluding cash) | $5,500,000 | - Management expresses confidence that its cash on hand, funds from the recent Private Placement, and working capital will be adequate to meet liquidity requirements for at least the next twelve months[102] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company qualifies as a smaller reporting company - Disclosure about market risk is not required for small reporting companies[104] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no significant changes to internal control over financial reporting - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[106] - There were no significant changes in internal control over financial reporting during the fiscal quarter ended September 30, 2023[107] PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not currently a party to any legal proceedings that it believes will have a material adverse effect on its business[109] Risk Factors This section is not applicable as the company qualifies as a smaller reporting company - Disclosure of risk factors is not required for small reporting companies in a Form 10-Q[110] Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities were reported for the period - None reported for the period[111] Defaults Upon Senior Securities No defaults upon senior securities were reported - None reported[112] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[113] Other Information No other information was reported for disclosure in this section - None reported[114] Exhibits This section lists exhibits filed with the Form 10-Q, including a lease agreement, credit agreement amendment, and officer certifications - Key exhibits filed include: * Lease agreement for the MICS Nomad, LLC venue in New York * Waiver and Second Amendment to the Credit and Security Agreement * Certifications by the CEO and CFO as required by SEC rules[115]