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 | ||||||||||