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, 2018March 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, 2018September 30, 2017 September 30, 2018September 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, 2018September 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