Good day, everyone, and welcome to The Singing Machine Fiscal 2022 Earnings Report. At this time all participants are in listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. . Please note this call may be recorded, and I will be standing by if you need any assistance. It is now my pleasure to turn the conference over to Brendan Hopkins. Please go ahead.

Thank you, everyone for joining us today. We have a brief Safe Harbor and then we'll get started. Except for historical information contained herein, the statements in this conference call are forward looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from forecasted results. With that said, I would like to turn the call over to Gary Atkinson, CEO of The Singing Machine.

Thank you, Brendan. Good morning everyone. My name is Gary Atkinson, Singing Machine’s CEO. I'm joined as well this morning by Lionel Marquis, company's CFO; and Bernardo Melo, our Chief Revenue Officer. I want to start off the call by thanking everyone for taking the time to listen in and participate in our fiscal year 2022 earnings call. The 12 months ended March 31, 2022 was a unique period in the company's history. We faced a number of very significant challenges and headwinds to our business. But I'm proud to say that our entire global team executed very well. We overcame a series of daily obstacles related to global supply chain and found a way to ensure our critical retail channel partners had the products they needed to support strong consumer demand for our karaoke products. Our CFO Lionel Marquis will provide additional details into the results of operations. But I wanted to celebrate some key accomplishments. First, despite all of the challenging supply chain obstacles from last year, we still managed to deliver over one million karaoke products to the worldwide market, generating over $47.5 million in net sales. This represents approximately $1.7 million or 4% growth versus the $45.8 million we generated in the last fiscal year. Secondly, we cemented a critical technology relationship with our most important strategic partner, Stingray. Stingray is one of the leading digital content licensing providers in -- throughout the world. And they played a key role in our shareholder reconstitution, our NASDAQ uplist and a number of key technology initiatives that we launched during fiscal year 2022. And finally, we've completed a critical new step in expanding our relationship with Walmart through their consumer electronics division. This has the potential to drive incremental revenue growth for the next several years, and Bernardo…

Thank you, Gary. I also wanted to thank all the participants in today's earnings call. I believe we delivered some very solid results for fiscal year 2022, particularly when you consider the operational and the economic headwinds that we face during the year, as Gary alluded to. First, I'd like to discuss our sales growth for 2022. Our revenues for the 12 months ended March 31, 2022 were $47.5 million. That represents a 4% growth when compared to our sales of $45.8 million for the prior fiscal year. I think it's worth noting that the strength and resiliency of our sales growth. In fiscal 2021, we enjoyed a very strong year-over-year sales growth primarily due to two factors. First, we benefited from the emphasis on consumers finding safe and home-centric forms of entertainment during the bulk of the global pandemic. Secondly, Singing Machines successfully launched its carpool karaoke device which proved to be very well received. These two factors led to almost 19% revenue growth in fiscal 2021. Now when you consider 2021 as a banner year, and then you factor in all of the supply chain headwinds it can be hard to imagine fiscal ‘22 outperforming such a banner year. However, without the benefit of any new major product launches to stimulate demand, overall consumer demand remained very strong, and we delivered steady growth. This is a testament to our strong brand recognition and consumer reach through virtually every meaningful retailer in the United States. As for the cost of goods sold, and their inherent impact on gross margins, we generated $10.8 million in gross income for the fiscal year. This represents approximately 12% decrease from the $12.8 million generated in fiscal year 2021 in gross profit. The decrease was driven heavily by margin compressions. We experienced significant increases…

Thank you, Lionel. At this point in the call, I would like to turn it over to Bernardo Melo, who will give us a bit of a recap on fiscal ‘22 sales. Go ahead Bernardo.

Good morning, everyone. I would also like to thank you for taking an interest in our company and listening today. I'm sure we have some new listeners. I just want to recap a little bit of what we are doing in the retail landscape. Singing Machine has been dominant, especially in North America with all the big box retailers throughout, representing the home karaoke segment, doing business with big box retailers like Walmart and Target, warehouse clubs like Costco, Sam's Club and BJ’s, e-commerce like Amazon and all the dropship that we do with those major retailers that I mentioned before. And we're also doing a lot of business with regional retailers like BrandsMart and P.C. Richard, for those that know those retailers. So we usually dominate somewhere around two to six feet of space of the home karaoke network segment, and we've been doing so for many years. With that being said, like Gary highlighted 2022, and I'll talk about fiscal year but also reference calendar year as well. 2022 was definitely a big challenge all around for everyone doing business in the retail level, with container prices increasing from anywhere from $4,200, all the way upwards to $20,000 a container. And we set a lot of our business almost a year, a 1.5 year in advance. So we have programs in place before we incur these costs. Fortunately, we were able to pass some costs, but not fast enough, as a lot of retailers have 90 day windows before they could accept price increases. With that being said, we did have good sell-through for the products that we did get in. We had good sell through at retail. The holidays were still very strong for us with Black Friday and promotional sales going well. And a lot of…

Perfect thank you Bernardo. I'm mindful of time. I want to make sure I save some time for Q&A, but before that, I just quickly want to take a few minutes to shift gears and highlight some key non-financial accomplishments that our team completed during fiscal ‘22 that we believe have established strong growth and innovation momentum for the company as we move forward. So firstly, during fiscal ‘22, we successfully completed a $10 million private placement back in August of 2021. The primary purpose of this transaction was to basically reinvigorate our shareholder base and buy out our legacy majority shareholder of more than 20 years. And the rationale for this was pretty simple. We had -- we the management team had identified certain growth and innovation opportunities that we believe the company is ideally situated to take advantage of. However, our former majority shareholder had a very traditional hardware-only view for the company and we felt it was critical that we expanded into the music content and other verticals in order to successfully continue to keep growing. As part of this process, to transform the company, we also started back in fiscal ‘22 of pursuing an uplist to national exchange, and NASDAQ made a lot of sense for us at the time. Ultimately, the hard work that we put in last summer led to a successful uplisting to the NASDAQ this spring. We believe that this new platform will serve our investors well as we execute and share our growth story moving forward. Secondly, we have expanded our most important strategic relationship with Stingray. They are a leading global digital music content company and their technology plays a key role in our emerging subscription-based growth model. The capability was also central to our new WiFi streaming and our new casting enabled products that were very well received by the Walmart consumer electronics team. We believe we can leverage these technology-driven capabilities to capture more incremental opportunities in terms of average sales price per machine, improved margins, and drive follow-on subscription services to keep the customer coming back for more. And finally, before we jump into Q&A, we are also in the process of thinking bigger. We are underway in shifting our overall thinking from being the number one market leader in home karaoke, to being the number one market leader in all aspects of karaoke. We intend to continue to dominate the in-home market as we already have done. But we also want to improve our penetration into the car and into connected devices, and smart TVs. Overall, we seek to leverage our well-known brands to expand our reach into larger, more lucrative markets. We look forward to providing additional updates on these efforts as we continue to execute on our business strategy in the coming future. So at this time, I would like to open it up now for any questions that anyone might have.

And our first question comes from Rommel Dionisio with Aegis Capital.

Hi, good morning. Thanks for taking my question. I saw a press release in early June about full line of assortment of products being available in Walmart and on the electronic side, more importantly. Just I know it's been just a few weeks, and it's not peak season. But I just wonder if you could relate some sort of initial feedback from the placement there. Obviously a significant win in terms of expansion of shelf space in the key retailer like Walmart. And yeah, just wondering how that's gone so far, and outlook going into next several months more of a peak season. Thank you.

Yeah, thank you for the call. I'll take that one. Although it said in May of -- mid-May of this year, which is not normally traditional setting for karaoke, using karaoke sets sometimes in September, October, numbers are off to a good start. A couple of really encouraging points on it. Number one people are really are understanding the Sing Cast, they are buying it. Numbers are promising right off right off the bat. And we partnered with a Stingray company called Chatter that allows us to put a QR code right outside the box. And we're able to see what sort of engagement people are doing when they're accessing this QR code. And we've seen that people are using that QR code to determine which is the right model for them. Originally, we thought that, that QR code was mostly going to be used on how to set up the machine. But we're actually seeing that people are engaging and trying to find out what model is right for them. So we're able to introduce the two Sing Cast model. We also introduced a brand new product category for us, which is more of a professional mic for Vblog and podcasting, and things like that, which could be a new area of product for us. That's also been encouraging. And then still our traditional karaoke, although there's new technology there, our traditional karaoke technology is still holding up as well. So we're excited about it. We already had conversations for 2023, believe it or not on that section and the feedback from the buyer was that she wants to expand even in 2023. So we're off to a good start. And we're really happy about it.

And then just one other point, just to add to what Bernardo said, the other key takeaway from the sale so far is the higher price points are actually performing well. And that was a concern of mine. Typically anytime you deal with Walmart, their customers are so price sensitive. And there was concerns whether the higher price points in the assortment would perform. And they have. They've performed really well so far. So that's a promising sign as well.

Gary, just on that, could you just clarify specifically, that's -- you're referring to like, what $99 to $149. And the most -- the previous high price point at Walmart before this, you got the . Thank you.

The previous high point was $59, which was in the toy department. We've done some features here and there, but in line product, the previous high was $59. Now we're carrying three items above $99. So we're carrying three items, a $99, a $129, and a $149. And initially, the $129 led all items in sales, which was very encouraging for us. And the $149 item has been steady all along. And we have a really cool promotion beginning in October for a rollback, which we think is even going to elevate that item even more.

Great. That's great feedback. Thanks so much, gentlemen.

And our next question comes from Corey Deutsch with Paradigm Opportunities Fund.

Hey Gary, Lionel and Bernardo. First and foremost, congrats on a fantastic year, and significant milestones, including taking autonomy back to business and focusing on very attractive high growth arenas. So I wanted to congratulate you first.

Thank you.

Thank you, Corey.

Second, I was wondering if you guys could double click on subscription revenue and the Stingray partnership in the context of the company's margins last year, which from my understanding, just given the macroeconomics, combined with the supply chain issues obviously hurt margins a bit. But how do you see that going forward, when you think about this Stingray, partnership, the subscription revenue, and how a lot of that goes straight to the bottom line?

Sure, I can address that and thank you for the question, Corey. So when I -- I think the way we think broadly about the subscription based business is it's working. We've seen it when we tightly integrated music and the hardware of the machine. We've seen that, that had a significant impact on just how sticky that service can be. So for instance, we launched a new high price point WiFi pedestal at Costco and Sam's Club, and that has WiFi and music content services built directly into the machine. And we saw that the rate of retention on those customers that converted to paying subs was astronomically higher than anything else we'd seen before. In a similar situation with the new Walmart consumer electronics program, we introduced this new technology called Sing Cast, which enables people to cast their karaoke videos from their mobile phone up to their TV. And again, we're seeing very strong numbers, just initially right off the bat through the Sing Cast technology line. So I think the overall broader point is that when we take the effort to integrate the machines with the music, the success is much more apparent.

Yes, that's very helpful. I really appreciate that color. Gary. I guess to follow up with that commentary, the Stingray partnership, which is -- it's a great partnership, and it has recently shown more and more traction. How do you think about product focus in the go forward? If you look at your catalog, obviously, the company offers a number of SKUs. And if you look at the bottom line, blended, clearly, there are some SKUs that just don't achieve the margin that is as attractive or quite frankly, any margin relative to the subscription revenue. How do you think about where you focus and go forward, and how you can see those margins changing due to product shift?

Sure, so I mean, I think you're referring to -- we certainly have a large percentage of our overall hardware portfolio that are lower margin drivers. So mainly promotionally driven products. And for us, those are key in terms of just maintaining a lot of those retail relationships. Those are sort of the -- keeps our foot in the door. We know it doesn't necessarily deliver a lot of margin and profits to the bottom line, but it's -- they’re essential to just continue to sort of hold on to our retail shelf space, because if we don't do it, we know one of our competitors will. So we're not going to walk away from that. But I think that the takeaway from your question is we're definitely going to be focusing a lot more of our energy in terms of developing new karaoke products that work well with the sort of the integrated Stingray music content offerings, right. So it's just been proven, the more that we do with music content built in, the better the experiences for the consumer. And it's -- and for the subscription service itself.

Yeah, and Corey, one of the things that we're looking at heavily -- and this has been great that Stingray -- Stingray has been a strong partner with us in helping us -- introduced us to new partnerships, such as like Roku TV, or the car -- in-car entertainment. And we see that as a huge opportunity for us to deliver product that is a bit higher margin, but also works well with the Stingray ecosystem. And they've been good enough to include us in a lot of those conversations. So therefore, we're going to be trying to focus also our product development on addressing those segments.

That makes a lot of sense. So if I'm understanding it correctly, essentially, what you're saying is, while you acknowledge the margin on some of your products may not be as attractive, the consumer generally is attracted to that product, and helps with your brand awareness and continue to seek that shelf space, which therefore allows you to penetrate with new innovative technology and products that have the subscription integrated. I get that, and I just again, want to say congratulations. And I think something that's becoming abundantly clear to me over the past couple quarters is the experience, knowledge and relationships that you guys have managed that team, have developed with big box retail, as well as online marketplaces, is truly invaluable and indispensable. So I really thank you guys for your efforts and everything you do to drive a really great company.

Thank you, Corey. We certainly appreciate those kind words.

We'll take our next question from Eric Nickerson with Third Century Partners.

Hey, good morning, guys. On the subscription business, ask a little bit more on that. What were the subscription revenue sales in ’22, fiscal ’22?

So maybe --

Bernard?

Yes, I can hear you. Yeah, so we didn't -- we don't break out the revenue in our -- obviously in our earnings statement. So they're not a sort of material enough number just yet, for us to be breaking out as a different segment for that revenue, but I can tell you that it was well north of $1 million and growing pretty significantly. So hopefully that that addresses your question.

Yeah, I guess I guess that's good enough. I mean sounds like something like a $0.5 million or 1% of sales somewhere, I forget where? So I guess you're presuming and, you know, triple digit growth rates on that, over the next couple, two or three years. Would that be correct? I mean, it's got to have to grow that much to become significant. And you talk a lot about it. And I guess it's its future of the company with the margins and all. So am I correct in that, you expect that to grow just exponentially, at least for the next few years.

Yeah, I think we do. I think the key factor, though is number of machines that we sell into the market right. So those are the best way to sell the services to the customers that are buying the machines. So our goal is to convert more and more of those machines, from more of a traditional karaoke machine into more of an integrated technology machine that supports the Stingray services. So that's kind of the burden that's on us right now is trying to innovate and just continue to keep releasing more and more new products that that support that Stingray platform.

Okay, good enough. Just some questions on the finances. We did, I guess you raised a net of about -- just back of the envelope here's $7 million to $8 million between last year and this year's secondary offerings and the buybacks. And I look at the balance sheet I see we got a lot of inventory. So I'm guessing most of that money has been sunk into inventory, which leads me to wonder, what -- how's the financial situation look to go ahead this year, and finance whatever it is more that you need for the holidays in terms of the inventory and the receivables? How are we set up to finance that stuff? Are we going to need more secondaries? We do have -- we have bank financing lined up? Do you have enough money in the till? How's it look?

We've got -- we have financing. We currently have financing with Crossmark and Iron Horse that has served us well. It's kind of an evergreen type of situation. It's up to us to terminate. If we don't give a termination notice on the anniversary of the renewal each year, if you will, the agreements continue to move on as evergreen. Certainly I'm working on alternative financing, because that market is not the cheapest market right now. And I'm working diligently on alternative financing for that point. But there's no concern about having financing for what we have right now. You mentioned that we raised approximately $8 million over the last year. A lot of it went to -- $7 million of the first tranche went to buy out the parent company, if you will, not sell me . But a large portion of it went to buy out the former parent corporation. So that left us with approximately $4 million, $5 million of working capital, operating capital, much of which we did use to buy down the inventory. Now, that having been said, the inventory that we do have on hand, there is there's no obsolescence involved here, at least not in the near future. We'll have to buy less inventory this year than we had to last year, which is going to help us on a cost situation. If cost of containers and stuff do start going up again and logistics issue start existing, we'll have that in its active inventory. It is inventory that's going to be moved. And we do have plans for placement, if you will, and all that inventory that's there. I believe that we're -- we have sufficient cash to operate between what we've raised so far. We're not contemplating another raise at this point in time. We think the -- from what our projections are for operations and also what we have from financing will be sufficient for the next 12 months to take care of the operation for this year.

Okay, yeah. One more, one more quickly for you, Lionel. I looked through the financial statements. I noticed we said we got net income of $230,000 on the bottom line. Then over on the on the balance sheet, it shows that our accumulated deficit increased by something like $2.6 million. My understanding is this and maybe you can educate me here is your net income figure should go over directly and adjust the accumulated deficit in the other direction by the amount of net income. So what happened there? Why -- do I not understand your accounting system or if you can .

I'm not sure I understand the question. I tell you what I -- what I'll do is I'll take a look at it for you, and -- because I'm not sure I understand your question.

Well, let me put it simpler. We had $230,000 of net income right now, but the accumulated deficit shows an increase of $2.6 million. And I just want to know why that is. That's what I'd like. Maybe making give me a call or something. I'll call you later on.

Yeah. Why don't we take this offline, because I'll take a look at that and see, because a lot of things have happened with equity over the past six months, so it may have something to do with that, but I'll take a look at it?

Okay, just a few questions and quickies about our new majority owner? Is he wanting to install any Directors on the Board?

Yeah, sure. I'll tackle that. So nothing has been publicly announced yet. I know that I believe that Bitnile in one of their 13D filings did say that they had intentions to add Directors to the Board. But obviously we're still in the process of getting to know each other and understanding sort of the mutual working relationship moving forward. So I will say it's been -- it has been very positive. We've met and spoken with Todd Ault, who is the Executive Chairman of Bitnile. He has been so far just very, very supportive of our business, and looking for ways to help us grow. So we are very sort of confident in terms of moving forward together. But right now, there's been no -- we haven't finalized any number of Directors on the Board. And once we do, obviously, we'll make those disclosures.

Okay, has he proposed any strategy shifts or management changes or anything like that, that would impact what you guys want to do going forward?

No, so far, no. I mean, he's not -- he's been very, very clear and adamant that he is not looking to run this business. He has a lot of faith, and has shown a lot of support to the existing management team that's in place now. And he just felt like we were undervalued, I think. I mean, I don't want to put words in his mouth. But I feel like he sees the opportunity with all of the retail distribution that we have with every single major big box retailer. And he felt like the Street wasn't really appreciating what we have and felt like there was opportunities to help us expand. So I think I'll leave it at that.

Hey, Eric. Sorry, it’s Lionel again, just to come back to your question earlier. If you take a look at the consolidated statements of shareholders equity, you'll notice that there was a $2.8 million decrease in the accumulated -- sorry in the accumulated deficit because of the buyback of retirement of treasury shares when we purchased -- when we took out the majority shareholder back in August. So that was approximately $2.8 million of shares bought back and retired in the treasury and that's what reduced the accumulated deficit. But you had a $230,000 pickup and a buyback, if you will, of treasury share redemption and retirement of treasury shares when we took out the parent that was approximately $2.8 million. So the net was $2.6 million hit to the accumulated deficit.

Okay, and this is the operator. I was just letting you know, Eric's line got disconnected during the middle of that. And currently -- there are currently no further questions at this time.

Perfect. All right. Well, thank you, everybody. I appreciate everybody taking the time to listen to our fiscal ‘22 yearend earnings call and thanks for everybody that asked some great questions. We look forward to speaking with you all next month to cover the results of our first quarter for fiscal ‘23. So right around the corner. All right. Thanks, everybody. That concludes our call today. Have a great day and we'll talk to you all soon. Take care.

Thanks for joining The Singing Machine fiscal 2022 earnings report. This does conclude today's program. You may now disconnect and have a great weekend.