Singing Machine Announces Second Quarter 2019 Earnings Report

FORT LAUDERDALE, Fla., Nov. 14, 2018 (GLOBE NEWSWIRE) -- The Singing Machine Company, Inc.  (“Singing Machine” or the “Company”) (OTCQX: SMDM) – the worldwide leader in consumer karaoke products – today announced its financial results for its second quarter ended September 30, 2018.

Second Quarter Snapshot:

• Net sales of $24.3 million for the quarter ended September 30, 2018.
• Gross margin of 21.4%.
• Operating Expenses reduced by 45% compared to the prior year second quarter.
• Net Income improved by 55% to $1.2 million for the quarter ($0.03 per share).

Singing Machine reports net sales of approximately $24.3 million for the quarter-ended September 30, 2018 period, compared to $32.8 million in the same period last year.    The decrease in net sales from the same period in the prior year was primarily due to the bankruptcy of Toys ‘R’ Us which accounted for approximately $5.4 million of the decrease.

The Company reported gross profit margin of 21.4%.  The decrease in gross margin was mainly due a higher mix of promotional products that shipped in the second quarter compared to the same period last year. Total operating expenses decreased by $2.9 million, from $6.4 million to $3.5 million. The reduction in expenses was primarily due to a reduction in bad debt reserve of approximately $2.2 million and an 18% reduction in general & administrative expenses.

As a result, the Company reported an increase in net profit of $1.2 million ($0.03 per share on a fully diluted basis) compared to approximately $0.78 million in the prior year.

Management Commentary:

Gary Atkinson, Singing Machine CEO, commented, “During the second quarter we continued to see the impact of the liquidation of Toys ‘R’ Us on our business.  We had success launching new, hot products this year, such as the Singing Machine Studio and the new Kids’ Pedestal which won one of Parents Magazine best toys of 2018.  Despite success with these new product launches, we have not yet been able to open up enough new distribution to offset the loss of Toys ‘R’ Us.”

Atkinson added, “While the financials do not yet to reflect a lot of the hard work we are doing year-to-date, we are positioning the Company for future re-growth through diversification outside of our core karaoke lineup and new distribution channels both domestically and abroad.”

Bernardo Melo, VP of Sales & Marketing, commented, “We recently concluded a major toy show in Hong Kong where we debuted our new product lineup for 2019, including our new Kids and core Karaoke lines of products. We saw a highly enthusiastic reception to our Product assortments for 2019.  As we enter the holiday season, look for Singing Machine to continue to be a leader in the category with highly visible holiday promotions, aggressive marketing, and best-in-class product and value offerings at all of our retailers.”

Earnings Call Information:

The Company will host a conference call today, Wednesday, November 14, beginning at 10:00 am Eastern time to discuss these results and answer questions. If you would like to participate on the call, please dial 877-876-9174 and use conference ID: SMDM.

An audio rebroadcast of the call will be available later in the day after the earnings call and can be heard at: www.singingmachine.com/investors.

About The Singing Machine

Based in the U.S., Singing Machine® is the North American leader in consumer karaoke products. The first to provide karaoke systems for home entertainment in the United States, the Company sells its products worldwide through major mass merchandisers and on-line retailers. We offer the industry's widest line of at-home karaoke entertainment products, which allow consumers to find a machine that suits their needs and skill level. As the most recognized brand in karaoke, Singing Machine products incorporate the latest technology for singing practice, music listening, entertainment and social sharing. The Singing Machine provides consumers the best warranties in the industry and access to over 14,000 songs for streaming and download.  Singing Machine products are sold through most major retailers in North America and also internationally. See www.singingmachine.com for more details.

Investor Relations Contact:
Brendan Hopkins
(407) 645-5295
investors@singingmachine.com
www.singingmachine.com
www.singingmachine.com/investors

Forward-Looking Statements
This press release contains forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward‑looking statements are based on current expectations, estimates and projections about the Company's business based, in part, on assumptions made by management and include, but are not limited to statements about our financial statements for the fiscal year ended March 31, 2018.  You should review our risk factors in our SEC filings which are incorporated herein by reference.  Such forward‑looking statements speak only as of the date on which they are made and the company does not undertake any obligation to update any forward‑looking statement to reflect events or circumstances after the date of this release.

The Singing Machine Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
		September 30, 2018			March 31, 2018
		(Unaudited)
Assets
Current Assets
	Cash	$	1,754,729		$	813,908
	Accounts receivable, net of allowances of $368,021 and $82,102 respectively		19,933,354			1,066,839
	Accounts receivable related party - Starlight Consumer Electronics USA, Inc.		7,054			7,054
	Accounts receivable related party - Cosmo Communications Canada, Inc		567,123			-
	Accounts receivable related party - Winglight Pacific, Ltd		1,444,519			1,150,104
	Inventories, net		12,894,732			8,536,934
	Prepaid expenses and other current assets		303,362			137,970
	Deferred financing costs		13,333			13,333
	Total Current Assets		36,918,206			11,732,354
Property and equipment, net			646,790			450,305
Deferred financing costs, net of current portion			10,000			16,667
Deferred tax assets			882,391			937,137
Other non-current assets			12,039			11,523
	Total Assets	$	38,469,426		$	13,147,986
Liabilities and Shareholders' Equity
Current Liabilities
	Accounts payable		18,654,847			1,614,748
	Accrued expenses		1,533,119			701,932
	Current portion of bank term note payable		375,000			500,000
	Due to related party - Starlight Electronics Co., Ltd		391,380			210,756
	Due to related party - Starlight R&D, Ltd.		111,600			113,116
	Due to related party - Merrygain Holding Co., Ltd.		128,290			89,803
	Revolving line of credit		6,877,610			-
	Customer deposits		36,691			-
	Refunds due to customers		11,184			445,484
	Reserve for sales returns		1,466,627			726,000
	Current portion of capital leases		14,151			-
	Current portion of subordinated related party debt - Starlight Marketing Development, Ltd.		815,367			689,792
	Total Current Liabilities		30,415,866			5,091,631
Bank term note payable, net of current portion			-			125,000
Capital leases, net of current portion			24,772			-
	Subordinated related party debt - Starlight Marketing Development, Ltd., net of current portion		-			125,575
	Total Liabilities		30,440,638			5,342,206
Commitments and Contingencies
Shareholders' Equity
	Preferred stock, $1 par value; 1,000,000 shares authorized; no shares issued and outstanding		-			-
	Common stock, Class A, $0.01 par value;  100,000 shares authorized; no shares issued and outstanding		-			-
	Common stock, Class B, $0.01 par value;  100,000,000 shares authorized;  38,384,753 and 38,282,028 shares issued and outstanding, respectively		383,847			382,820
	Additional paid-in capital		19,662,766			19,624,063
	Accumulated deficit		(12,017,825	)		(12,201,103	)
	Total Shareholders' Equity		8,028,788			7,805,780
	Total Liabilities and Shareholders' Equity	$	38,469,426		$	13,147,986
See notes to the condensed consolidated financial statements

 

The Singing Machine Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
				For the Three Months Ended							For the Six Months Ended
				September 30, 2018			September 30, 2017				September 30, 2018			September 30, 2017
Net Sales				$	24,304,945		$	32,802,163			$	26,141,456		$	36,741,896
Cost of Goods Sold					19,098,263			25,064,608				20,543,291			27,925,192
Gross Profit					5,206,682			7,737,555				5,598,165			8,816,704
Operating Expenses
	Selling expenses				2,014,664			2,381,456				2,461,364			2,845,203
	General and administrative expenses				1,364,102			1,672,001				2,712,121			3,044,503
	Bad debt expense (recovery), net				88,023			2,335,512				(51,352	)		2,322,241
	Depreciation				68,210			43,389				135,781			86,602
Total Operating Expenses					3,534,999			6,432,358				5,257,914			8,298,549
Income from Operations					1,671,683			1,305,197				340,251			518,155
Other Expenses
	Interest expense				(72,176	)		(95,298	)			(95,561	)		(95,581	)
	Finance costs				(3,333	)		(3,333	)			(6,667	)		(24,939	)
Total Other Expenses					(75,509	)		(98,631	)			(102,228	)		(120,520	)
Income Before Income Tax Provision					1,596,174			1,206,566				238,023			397,635
Income Tax Provision					(378,745	)		(422,290	)			(54,745	)		(140,369	)
Net Income				$	1,217,429		$	784,276			$	183,278		$	257,266
Net Income per Common Share
	Basic			$	0.03		$	0.02			$	0.00		$	0.01
	Diluted			$	0.03		$	0.02			$	0.00		$	0.01
Weighted Average Common and Common
	Equivalent Shares:
	Basic				38,348,400			38,274,371				38,315,395			38,266,878
	Diluted				39,530,880			39,160,863				39,497,875			39,153,371
See notes to the condensed consolidated financial statements

 

The Singing Machine Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
				For the Six Months Ended
				September 30, 2018			September 30, 2017
Cash flows from operating activities
	Net Income			$	183,278		$	257,266
	Adjustments to reconcile net income to net cash used in operating activities:
		Depreciation			135,781			86,602
		Amortization of deferred financing costs			6,667			24,939
		Change in inventory reserve			(81,780	)		(375,000	)
		Change in allowance for bad debts			285,919			2,329,907
		Stock based compensation			33,330			115,659
		Change in net deferred tax assets			54,746			139,165
	Changes in operating assets and liabilities:
		Accounts receivable			(19,152,434	)		(29,285,881	)
		Due from PNC Bank			6,212			242,859
		Accounts receivable - related parties			(861,538	)		(1,170,088	)
		Inventories			(4,276,018	)		(9,601,863	)
		Prepaid expenses and other current assets			(165,392	)		(12,280	)
		Other non-current assets			(516	)		-
		Accounts payable			17,040,099			20,816,821
		Accrued expenses			831,187			1,329,221
		Due to related parties			217,595			157,579
		Customer deposits			36,691			(1,543	)
		Refunds due to customers			(434,300	)		-
		Reserve for sales returns			740,627			1,904,711
			Net cash used in operating activities		(5,399,846	)		(13,041,925	)
Cash flows from investing activities
	Purchase of property and equipment				(288,740	)		(249,584	)
			Net cash used in investing activities		(288,740	)		(249,584	)
Cash flows from financing activities
	Net proceeds from revolving line of credit				6,877,610			11,548,522
	Net proceeds from bank term note				-			1,000,000
	Payment of bank term note				(250,000	)		(125,000	)
	Proceeds from exercise of stock options				6,400			-
	Payment of deferred financing costs				-			(40,000	)
	Payment on subordinated debt - related party				-			(1,109,064	)
	Payments on capital leases				(4,603	)		-
			Net cash provided by financing activities		6,629,407			11,274,458
Net change in cash					940,821			(2,017,052	)
Cash at beginning of period					813,908			2,305,439
Cash at end of period				$	1,754,729		$	288,387
Supplemental disclosures of cash flow information:
	Cash paid for interest			$	52,513		$	76,868
	Cash paid for income taxes			$	-		$	30,000
	Equipment purchased under capital lease			$	43,526		$	-
See notes to the condensed consolidated financial statements