10-Q

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)

	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)

	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)

	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)

	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 24^th 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 24^th 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:

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:

	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:

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:

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:

	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:

	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:

	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.

	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 24^th 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

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

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

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)

XML

Cover - $ / shares	6 Months Ended
	Jun. 30, 2024	Aug. 16, 2024
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Jun. 30, 2024
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2024
Current Fiscal Year End Date	--12-31
Entity File Number	001-41405
Entity Registrant Name	SINGING MACHINE CO INC
Entity Central Index Key	0000923601
Entity Tax Identification Number	95-3795478
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	6301 NW 5th Way
Entity Address, Address Line Two	Suite 2900
Entity Address, City or Town	Fort Lauderdale
Entity Address, State or Province	FL
Entity Address, Postal Zip Code	33309
City Area Code	(954)
Local Phone Number	596-1000
Title of 12(b) Security	Common Stock, $0.01 par value per share
Trading Symbol	MICS
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		9,736,850
Entity Listing, Par Value Per Share	$ 0.01

XML

Condensed Consolidated Balance Sheets - USD ($)	Jun. 30, 2024	Dec. 31, 2023
Current Assets
Cash	$ 1,245,000	$ 6,703,000
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
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
Nonrelated Party [Member]
Current Assets
Accounts receivable	2,349,000	7,308,000
Related Party [Member]
Current Assets
Accounts receivable	414,000	269,000
Due from Oxford Bank	$ 187,000

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)	Jun. 30, 2024	Dec. 31, 2023
Statement of Financial Position [Abstract]
Allowance for doubtful accounts receivable, net	$ 86,919	$ 174,000
Preferred stock, par value	$ 1.00	$ 1.00
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	7,418,061	6,418,061
Common stock, shares outstanding	6,418,061	6,418,061

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2024	Jun. 30, 2023
Income Statement [Abstract]
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	$ (0.95)	$ (0.64)	$ (1.32)	$ (1.56)
Loss per Common Share Diluted	$ (0.95)	$ (0.64)	$ (1.32)	$ (1.56)
Weighted Average Common and Common Equivalent Shares: Basic	6,418,061	3,872,447	6,418,061	3,487,299
Weighted Average Common and Common Equivalent Shares: Diluted	6,418,061	3,872,447	6,418,061	3,487,299

XML

Condensed Consolidated Statements of Shareholders' (Deficit) Equity (Unaudited) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Other [Member]	Retained Earnings [Member]	Total
Balance at Dec. 31, 2022	$ 31,000	$ 29,698,000		$ (16,531,000)	$ 13,198,000
Balance, shares at Dec. 31, 2022	3,148,219
Net loss				(5,445,000)	(5,445,000)
Stock based compensation		138,000			138,000
Sale of common stock, net of offering costs	$ 11,000	1,629,000			1,640,000
Sale of common stock, net of offering costs, shares	1,057,810
Other				(1,000)	(1,000)
Sale of common stock warrants		14,000			14,000
Sale of common stock warrants, shares	14,230
Balance at Jun. 30, 2023	$ 42,000	31,479,000		(21,977,000)	9,544,000
Balance, shares at Jun. 30, 2023	4,220,259
Balance at Mar. 31, 2023	$ 32,000	29,822,000	(6,000)	(19,517,000)	10,331,000
Balance, shares at Mar. 31, 2023	3,167,488
Net loss				(2,460,000)	(2,460,000)
Stock based compensation		63,000			63,000
Sale of common stock, net of offering costs	$ 11,000	1,593,000			1,604,000
Sale of common stock, net of offering costs, shares	1,052,771
Other	$ (1,000)	1,000	6,000		6,000
Balance at Jun. 30, 2023	$ 42,000	31,479,000		(21,977,000)	9,544,000
Balance, shares at Jun. 30, 2023	4,220,259
Balance at Dec. 31, 2023	$ 64,000	33,429,000		(25,915,000)	7,578,000
Balance, shares at Dec. 31, 2023	6,418,061
Net loss				(8,486,000)	(8,486,000)
Stock based compensation		36,000			36,000
Balance at Jun. 30, 2024	$ 64,000	33,465,000		(34,401,000)	(872,000)
Balance, shares at Jun. 30, 2024	6,418,061
Balance at Mar. 31, 2024	$ 64,000	33,448,000		(28,282,000)	5,230,000
Balance, shares at Mar. 31, 2024	6,418,061
Net loss				(6,119,000)	(6,119,000)
Stock based compensation		17,000			17,000
Balance at Jun. 30, 2024	$ 64,000	$ 33,465,000		$ (34,401,000)	$ (872,000)
Balance, shares at Jun. 30, 2024	6,418,061

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2024	Jun. 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

XML

Pay vs Performance Disclosure - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2024	Jun. 30, 2023
Pay vs Performance Disclosure [Table]
Net Income (Loss)	$ (6,119,000)	$ (2,460,000)	$ (8,486,000)	$ (5,445,000)

XML

Insider Trading Arrangements	3 Months Ended
	Jun. 30, 2024
Insider Trading Arrangements [Line Items]
Rule 10b5-1 Arrangement Adopted	false
Non-Rule 10b5-1 Arrangement Adopted	false
Rule 10b5-1 Arrangement Terminated	false
Non-Rule 10b5-1 Arrangement Terminated	false

XML

NATURE OF BUSINESS

6 Months Ended

Jun. 30, 2024

Organization, Consolidation and Presentation of Financial Statements [Abstract]

NATURE OF BUSINESS

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”).

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RECENT DEVELOPMENTS

6 Months Ended

Jun. 30, 2024

Recent Developments

RECENT DEVELOPMENTS

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.

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 24^th 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.

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LIQUIDITY, GOING CONCERN AND MANAGEMENT PLANS

6 Months Ended

Jun. 30, 2024

Organization, Consolidation and Presentation of Financial Statements [Abstract]

LIQUIDITY, GOING CONCERN AND MANAGEMENT PLANS

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.

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.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2024

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

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FINANCING

6 Months Ended

Jun. 30, 2024

Debt Disclosure [Abstract]

FINANCING

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.

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.

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.

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2024

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

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 24^th 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.

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OPERATING LEASES

6 Months Ended

Jun. 30, 2024

Operating Leases

OPERATING LEASES

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.

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:

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:

	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:

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

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STOCK COMPENSATION EXPENSE

6 Months Ended

Jun. 30, 2024

Share-Based Payment Arrangement [Abstract]

STOCK COMPENSATION EXPENSE

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.

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:

Number of Common Warrants		Exercise Price		Expiration Date
	802,113	$	2.80	September 15, 2026
	100,000	$	5.00	May 23, 2027
	902,113

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COMPUTATION OF LOSS PER SHARE

6 Months Ended

Jun. 30, 2024

Earnings Per Share [Abstract]

COMPUTATION OF LOSS PER SHARE

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:

	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.

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INCOME TAXES

6 Months Ended

Jun. 30, 2024

Income Tax Disclosure [Abstract]

INCOME TAXES

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.

The Singing Machine Company, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024 and 2023

(Unaudited)

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REVENUE DISAGGREGATION

6 Months Ended

Jun. 30, 2024

Segment Reporting [Abstract]

REVENUE DISAGGREGATION

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:

	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:

	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.

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CONCENTRATIONS OF CREDIT RISK AND REVENUE

6 Months Ended

Jun. 30, 2024

Risks and Uncertainties [Abstract]

CONCENTRATIONS OF CREDIT RISK AND REVENUE

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.

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.

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RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2024

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

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).

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ASSET ACQUISITION

6 Months Ended

Jun. 30, 2024

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

ASSET ACQUISITION

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.

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.

	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.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2024

Accounting Policies [Abstract]

Basis of Presentation

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

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.

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OPERATING LEASES (Tables)

6 Months Ended

Jun. 30, 2024

Operating Leases

SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES

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

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

SCHEDULE OF LEASE TERM AND DISCOUNT RATE

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

	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	%

SCHEDULE OF OPERATING LEASE MINIMUM FUTURE PAYMENTS

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

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

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STOCK COMPENSATION EXPENSE (Tables)

6 Months Ended

Jun. 30, 2024

Share-Based Payment Arrangement [Abstract]

SCHEDULE OF WARRANTS EXPIRATION

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

Number of Common Warrants		Exercise Price		Expiration Date
	802,113	$	2.80	September 15, 2026
	100,000	$	5.00	May 23, 2027
	902,113

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COMPUTATION OF LOSS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2024

Earnings Per Share [Abstract]

SCHEDULE OF BASIC AND DILUTIVE 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:

	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	)

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REVENUE DISAGGREGATION (Tables)

6 Months Ended

Jun. 30, 2024

Segment Reporting [Abstract]

SCHEDULE OF REVENUE BY PRODUCT LINE

Revenue by product line is as follows:

	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

SCHEDULE OF SALES BY GEOGRAPHICAL REGION

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

	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

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ASSET ACQUISITION (Tables)

6 Months Ended

Jun. 30, 2024

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

SCHEDULE OF PRO FORMA FINANCIAL INFORMATION

	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	)

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RECENT DEVELOPMENTS (Details Narrative)							2 Months Ended	3 Months Ended	6 Months Ended
	Aug. 09, 2024 USD ($)	Jul. 08, 2024 USD ($)	Jul. 03, 2024 shares	Jun. 26, 2024 USD ($)	Nov. 20, 2023 USD ($) $ / shares shares	Aug. 23, 2023 USD ($) ft²	Aug. 16, 2024 USD ($) shares	Jun. 30, 2024 USD ($)	Jun. 30, 2024 USD ($) shares	Jun. 30, 2023 USD ($)
Legal and administrative expenses										$ 215,000
Initial base rent								$ 30,000
Written off								3,878,000
Lease Agreement [Member]
Lease space | ft²						10,000
Lease term						15 years
Initial base rent						$ 30,000
Subsequent Event [Member] | Semi Cab LLC [Member]
Membership percentage			20.00%
Subsequent Event [Member] | Semi Cab LLC [Member]
Number of shares sold | shares			320,903
Issuance of common stock shares | shares			641,806
ATM Offering [Member]
Number of stock sold, value				$ 1,100,000
Legal and administrative expenses								$ 30,000	$ 30,000
Gross proceeds percentage								3.00%	3.00%
ATM Offering [Member] | Subsequent Event [Member]
Number of shares sold | shares							1,657,172
Proceeds from sale of equity							$ 1,676,000
Brokerage commissions and administrative fees							$ 51,000
First Amendment [Member] | Subsequent Event [Member]
Number of stock sold, value		$ 2,020,000
Second Amendment [Member] | Subsequent Event [Member]
Number of stock sold, value	$ 3,100,000
Private Placement [Member]
Number of stock sold, value					$ 2,000,000
Number of shares sold | shares					2,198,000
Proceeds from sale of equity					$ 1,900,000
Commmon stock share per share | $ / shares					$ 0.91
Transaction fees					$ 100,000
Registered shares | shares									1,099,000

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LIQUIDITY, GOING CONCERN AND MANAGEMENT PLANS (Details Narrative)	Jun. 30, 2024 USD ($)
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Cash and cash equivalents	$ 1,245,000

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FINANCING (Details Narrative) - USD ($)			3 Months Ended		6 Months Ended
	Mar. 28, 2024	Oct. 14, 2022	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2024	Jun. 30, 2023	Dec. 31, 2023	Aug. 30, 2023	Aug. 29, 2023
Line of Credit Facility [Line Items]
Interest expense			$ 17,000		$ 42,000
Amortization of deferred financing costs				$ 21,000		$ 42,000
Interest and Debt Expense				$ 25,000		$ 61,000
Related Party [Member]
Line of Credit Facility [Line Items]
Due from Oxford Bank			187,000		187,000
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Revolving credit facility maximum amount	$ 2,000,000	$ 15,000,000	89,000		89,000
The Prime Rate	2.50%
Credit agreement term	2 years
Revolving credit facility terminated date	Nov. 28, 2026	Nov. 17, 2023
Percentage of exit fee	2.00%
Costs associated with line of credit		$ 254,000
Base rates of loan description		(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.
Revolving Credit Facility [Member] | Maximum [Member]
Line of Credit Facility [Line Items]
The Prime Rate	10.00%
Revolving Credit Facility [Member] | Related Party [Member]
Line of Credit Facility [Line Items]
Due from Oxford Bank			$ 187,000		$ 187,000
Revolving Loan Amendment [Member]
Line of Credit Facility [Line Items]
Revolving credit facility maximum amount								$ 2,000,000	$ 5,000,000

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COMMITMENTS AND CONTINGENCIES (Details Narrative)		3 Months Ended
	Aug. 23, 2023 USD ($) ft²	Jun. 30, 2024 USD ($)
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Initial base rent		$ 30,000
Written off		$ 3,878,000
Lease Agreement [Member]
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Lease space | ft²	10,000
Lease term	15 years
Initial base rent	$ 30,000

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SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO LEASES (Details) - USD ($)	Jun. 30, 2024	Dec. 31, 2023
Operating Leases
Operating lease - right-of-use assets	$ 178,000	$ 3,926,000
Current portion of operating leases	165,000	84,000
Operating lease liabilities, net of current portion	$ 4,136,000	$ 3,925,000

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SCHEDULE OF LEASE TERM AND DISCOUNT RATE (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2024	Jun. 30, 2023
Operating Leases
Operating lease expense as a component of general and administrative expenses	$ 203,000	$ 237,000	$ 399,000	$ 483,000
Operating cash flow paid for operating leases	$ 46,000	$ 252,000	$ 91,000	$ 504,000
Weighted average remaining lease term (months)	14 years 3 months 18 days	13 years 2 months 12 days	14 years 3 months 18 days	13 years 2 months 12 days
Weighted average discount rate	12.00%	6.50%	12.00%	6.50%

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SCHEDULE OF OPERATING LEASE MINIMUM FUTURE PAYMENTS (Details) - USD ($)	Jun. 30, 2024	Dec. 31, 2023
Operating Leases
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	$ 84,000
Operating lease liabilities, net of current portion	$ 4,136,000	$ 3,925,000

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OPERATING LEASES (Details Narrative)				3 Months Ended
	Feb. 22, 2024	Aug. 23, 2023 USD ($) ft²	Oct. 01, 2017 ft²	Jun. 30, 2024 USD ($)
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Base rent				$ 30,000
Operating Lease Agreement [Member]
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Lease space | ft²		10,000	6,500
Lease expiration, date		Aug. 22, 2038	Mar. 31, 2024
Lease extension, description	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.
Base rent		$ 30,000
Reimbursement for tenant improvements		$ 700,000

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SCHEDULE OF WARRANTS EXPIRATION (Details)	Jun. 30, 2024 $ / shares shares
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]
Number of Common Warrants	902,113
Exercise Price Range One [Member]
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]
Number of Common Warrants	802,113
Warrant Exercise Price | $ / shares	$ 2.80
Expiration Date	Sep. 15, 2026
Exercise Price Range Two [Member]
Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items]
Number of Common Warrants	100,000
Warrant Exercise Price | $ / shares	$ 5.00
Expiration Date	May 23, 2027

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STOCK COMPENSATION EXPENSE (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2024	Jun. 30, 2023
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Unrecognised expense	$ 69,000		$ 69,000
Weighted average term			12 months
Vested options intrinsic value	$ 0		$ 0
Warrants outstanding	902,113		902,113
2022 Plan [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Share base compensation issued shares	0	0	0	0
Share base compensation forfeited shares	4,000	0	5,250	0
Number of shares available to issued	204,053		204,053

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SCHEDULE OF BASIC AND DILUTIVE LOSS PER SHARE (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2024	Jun. 30, 2023
Earnings Per Share [Abstract]
Net loss	$ (6,119,000)	$ (2,460,000)	$ (8,486,000)	$ (5,445,000)
Weighted-average common shares outstanding- Basic	6,418,061	3,872,447	6,418,061	3,487,299
Weighted-average common shares outstanding - Diluted	6,418,061	3,872,447	6,418,061	3,487,299
Basic net loss per share	$ (0.95)	$ (0.64)	$ (1.32)	$ (1.56)
Diluted net loss per share	$ (0.95)	$ (0.64)	$ (1.32)	$ (1.56)

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COMPUTATION OF LOSS PER SHARE (Details Narrative) - Share-Based Payment Arrangement, Option [Member] - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2024	Jun. 30, 2023
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potentially dilutive securities	108,511	108,343	108,511	108,343
Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Potentially dilutive securities			902,113	902,113

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INCOME TAXES (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2024	Jun. 30, 2023
Income Tax Disclosure [Abstract]
Income Tax (benefit) provision	$ (52,000)			$ 1,502,000

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SCHEDULE OF REVENUE BY PRODUCT LINE (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2024	Jun. 30, 2023
Revenue from External Customer [Line Items]
Total Net Sales	$ 2,440,000	$ 2,625,000	$ 4,866,000	$ 6,008,000
Classic Karaoke Machines [Member]
Revenue from External Customer [Line Items]
Total Net Sales	1,257,000	1,463,000	2,308,000	2,729,000
Licensed Products [Member]
Revenue from External Customer [Line Items]
Total Net Sales	107,000	8,000	198,000	(4,000)
SMC Kids Toys [Member]
Revenue from External Customer [Line Items]
Total Net Sales	102,000	21,000	171,000	154,000
Microphones and Accessories [Member]
Revenue from External Customer [Line Items]
Total Net Sales	865,000	957,000	1,818,000	2,737,000
Music and Other Income [Member]
Revenue from External Customer [Line Items]
Total Net Sales	$ 109,000	$ 176,000	$ 371,000	$ 392,000

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SCHEDULE OF SALES BY GEOGRAPHICAL REGION (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2024	Jun. 30, 2023
Revenues from External Customers and Long-Lived Assets [Line Items]
Total Net Sales	$ 2,440,000	$ 2,625,000	$ 4,866,000	$ 6,008,000
AUSTRALIA
Revenues from External Customers and Long-Lived Assets [Line Items]
Total Net Sales	124,000		124,000
North America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total Net Sales	$ 2,316,000	$ 2,625,000	$ 4,742,000	$ 6,008,000

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REVENUE DISAGGREGATION (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2024	Jun. 30, 2023	Dec. 31, 2023
Segment Reporting [Abstract]
Co-op promotion incentives	$ 240,000	$ 91,000	$ 349,000	$ 264,000
Reserve for sales returns	2,174,000		2,174,000		$ 3,390,000
Estimated costs of returns	$ 619,000		$ 619,000		$ 1,919,000

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CONCENTRATIONS OF CREDIT RISK AND REVENUE (Details Narrative) - Customer Concentration Risk [Member]		3 Months Ended		6 Months Ended
	Dec. 31, 2023	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2024	Jun. 30, 2023
Accounts Receivable [Member] | Three Customers [Member]
Concentration Risk [Line Items]
Concentration of sales risk, percentage				79.00%
Accounts Receivable [Member] | Four Customers [Member]
Concentration Risk [Line Items]
Concentration of sales risk, percentage	82.00%
Sales Revenue [Member] | Customers One [Member]
Concentration Risk [Line Items]
Concentration of sales risk, percentage		39.00%	87.00%	50.00%	86.00%
Sales Revenue [Member] | Customers Two [Member]
Concentration Risk [Line Items]
Concentration of sales risk, percentage		14.00%	86.00%	11.00%
Sales Revenue [Member] | Customers Three [Member]
Concentration Risk [Line Items]
Concentration of sales risk, percentage		13.00%		10.00%

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RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Jun. 30, 2024	Jun. 30, 2023	Dec. 31, 2023
Related Party Transaction [Line Items]
Revenue from related parties	$ 2,440,000	$ 2,625,000	$ 4,866,000	$ 6,008,000
Related Party [Member]
Related Party Transaction [Line Items]
Revenue from related parties	109,000	$ 176,000	349,000	$ 394,000
Due from related parties	187,000		187,000
Advanced working capital	415,000		415,000
Working capital			415,000
Stingray [Member]
Related Party Transaction [Line Items]
Due from related parties	$ 1,000		$ 1,000		$ 269,000

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SCHEDULE OF PRO FORMA FINANCIAL INFORMATION (Details) - USD ($)	6 Months Ended
	Jun. 30, 2024	Jun. 30, 2023
Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]
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)

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ASSET ACQUISITION (Details Narrative) - USD ($)		6 Months Ended
	Jul. 03, 2024	Jun. 30, 2023
Increase (Decrease) in Operating Capital		$ 265,000
Legal Fees		$ 215,000
Stock Issued During Period, Shares, Acquisitions		50,000
Subsequent Event [Member] | Semi Cab LLC [Member]
Shares purchase	641,806
Seller Consideration share	320,903
Subsequent Event [Member] | Semi Cab LLC [Member]
Membership percentage	20.00%
Asset Purchase Agreement [Member] | Subsequent Event [Member]
Shares purchase	641,806
Purchase of assets value	$ 738,000
Employment Agreements [Member] | Subsequent Event [Member] | 2024 [Member] | Ajesh Kapoor [Member]
Salaries and wages	140,000
Employment Agreements [Member] | Subsequent Event [Member] | 2024 [Member] | Vivek Sehgal Kapoor [Member]
Salaries and wages	105,000
Employment Agreements [Member] | Subsequent Event [Member] | 2025 [Member] | Ajesh Kapoor [Member]
Salaries and wages	240,000
Employment Agreements [Member] | Subsequent Event [Member] | 2025 [Member] | Vivek Sehgal Kapoor [Member]
Salaries and wages	210,000
Employment Agreements [Member] | Subsequent Event [Member] | Subsequent Years [Member] | Ajesh Kapoor [Member]
Salaries and wages	300,000
Employment Agreements [Member] | Subsequent Event [Member] | 2026 [Member] | Vivek Sehgal Kapoor [Member]
Salaries and wages	240,000
Employment Agreements [Member] | Subsequent Event [Member] | 2027 [Member] | Vivek Sehgal Kapoor [Member]
Salaries and wages	270,000
Employment Agreements [Member] | Subsequent Event [Member] | 2028 [Member] | Vivek Sehgal Kapoor [Member]
Salaries and wages	$ 300,000