Singing Machine Company Inc (MICS)

[NobleRoman]

As much as I hate to say it, I think I got an explanation from a credible source late last night on why we dropped. I really don't understand the answer, and he is a victim too. It comes from one of the last cc participatnts: Eric Nickerson – Third Century

Source: https://seekingalpha.com/news/3728827-singing-machine-receives-minority-investment-by-stingray#comment-92534271

I hate to be the bearer of bad news, but here it is. This most recent combination reverse split / $4 million capital raise is horrendously dilutive, far beyond what I would have expected. The day before the deal, the stock closes at $5.50. The deal sells 1 million shares at $4.00 per share - an unconscionably huge discount to market. That's bad enough. But the real damage to shareholders like us is the effect of the deal on the exercise price of the (formerly $.30) $9.00 warrants, about 550,000 of them. That exercise price is reduced from $9.00 down to $2.40, in accordance with obscure "anti-dilutive" provisions in the warrant agreement.
This dilution might be acceptable if MICS really needed the $4 million. It didn't. MICS already had $7 million in the bank, and a decent bank deal in place to finance this year's inventory and receivables for the holidays.

This dilution explains why the stock immediately traded down more than 50% the day the deal was done - to far below even the $4 deal price. I've never seen anything like this before, and hope I never do again. The stock may be a bargain at today's $3.50, but there's no doubt we legacy shareholders got ripped off.

I don't understand it, but I appreciate his honesty. He got blindsided too. I personally blame our CFO. He should have either known, or he deceived us. Either way, he should be replaced. But it's a good price here I think. And I see 2.8 million shares, which is a p/s of 1 at little over $15.00 which is a good return at these prices.

Now I wish we didn't go Nasdaq,but the deed was done. I don't blame the reverse split "curse." I blame his explanation, which I don't fully understand. They sucker punched us in the fine print somewhere apparently. I don't know how you can be pre-funded though and still exercise at a different price. The logic doesn't make sense to me and he hasn't elaborated, but he is a credible source to me.

Hopefully he brings it up in the next CC. I'd like to hear them tapdance around it. They have a shareholders presentation tomorrow I think? Asking people to trust them, but I don't think they can be trusted anymore. That being said, I'm long and I see the value. But just watch your back with this team.