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Singing Machine Announces First Quarter 2019 Earnings Report

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FORT LAUDERDALE, Fla., Aug. 14, 2018 (GLOBE NEWSWIRE) -- The Singing Machine Company, Inc.  ("Singing Machine" or the "Company") (OTCQX:SMDM) – the North American leader in consumer karaoke products – today announced its financial results for its first quarter ended June 30, 2018.

First Quarter Snapshot:

  • Net sales of $1.8 million for the quarter ended June 30, 2018.
  • Gross margin of 21.3%.
  • Net loss of $1.0 million for the quarter.
  • Streaming music subscription sales increased 54% YoY.
  • Fees received from 3PL logistics services increased to $0.2 million for the quarter, an increase of 136% YoY.

Singing Machine reports net sales of approximately $1.8 million for the quarter-ended June 30, 2018 period. The decrease in net sales was primarily due to the bankruptcy of Toys ‘R' Us which accounted for approximately $1.0 million in sales in the prior year same quarter. The Company also experienced a one-time unexpected factory closing during the first quarter which caused shipments of approximately $0.8 million to shift into the second quarter.  

Gross profit margin decreased by approximately 6.1% percent to 21.3% net sales compared to approximately 27.4% of net sales reported in the prior year. The decrease in gross margin was mainly due to a one-time expense related to moving products from one factory to new suppliers due to an unexpected supplier interruption.

Total operating expenses decreased to $1.7 million compared to $1.9 million in the prior year. The reduction in expenses was primarily due to a reduction in general and administrative expenses related to a decrease in bad debt reserve of approximately $0.14 million due to lower sales and accounts receivable.

As a result, the Company reported a net loss of $1.0 million compared to a net loss of $0.53 million in the prior year.

Management Commentary:

Gary Atkinson, Singing Machine CEO, commented, "Due to the bankruptcy and liquidation of Toys ‘R' Us in March 2018, we experienced a first quarter slow down. We also experienced a disruption in our supply chain during the first quarter which caused a timing delay in shipments that were not able to be fulfilled in the first quarter. Those supply chain disruptions have since been resolved and those effected products are back in-stock. Despite the slow quarter and one-time market disruptions, we remain confident as the market leader in our category.  We believe the singing and music entertainment category is a growing market that is prime for international expansion."

Earnings Call Information:

The Company will host a conference call today, Tuesday, August 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 866-831-8713 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 13,000 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       
       
             
    June 30, 2018     March 31, 2018  
    (Unaudited)        
Assets      
Current Assets            
Cash  $   117,767    $    813,908  
Accounts receivable, net of allowances of $63,473 and             
$82,102 respectively     1,213,105       1,066,839  
Due from PNC Bank     -        6,212  
Accounts receivable related party - Starlight Consumer Electronics USA, Inc.     7,054       7,054  
Accounts receivable related party - Winglight Pacific, Ltd     293,651       1,150,104  
Inventories, net     8,834,930       8,536,934  
Prepaid expenses and other current assets     272,989       137,970  
Deferred financing costs     13,333       13,333  
Total Current Assets     10,752,829       11,732,354  
             
Property and equipment, net     708,500       450,305  
Deferred financing costs, net of current portion     13,333       16,667  
Deferred tax assets      1,261,136       937,137  
Other non-current assets     12,039       11,523  
Total Assets $   12,747,837    $    13,147,986  
             
Liabilities and Shareholders' Equity       
Current Liabilities            
Accounts payable $   1,687,655    $    1,614,748  
Accrued expenses     765,035       701,932  
Current portion of bank term note payable     625,000       500,000  
Due to related party - Starlight Electronics Co., Ltd     306,480       210,756  
Due to related party - Starlight R&D, Ltd.     112,359       113,116  
Due to related party - Merrygain Holding Co., Ltd.     128,290       89,803  
Revolving line of credit     1,089,822       -   
Refunds due to customers     256,154       445,484  
Reserve for sales returns     137,536       726,000  
Current portion of capital leases     14,065       -   
Current portion of subordinated related party debt - Starlight Marketing Development, Ltd.     815,367       689,792  
Total Current Liabilities     5,937,763       5,091,631  
             
Bank term note payable, net of current portion     -        125,000  
Capital leases, net of current portion     27,167       -   
Subordinated related party debt - Starlight Marketing Development, Ltd.,            
net of current portion     -        125,575  
Total Liabilities     5,964,930       5,342,206  
             
Commitments and Contingencies            
             
Shareholders' Equity             
Preferred stock, $1.00 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;             
 8,282,028 shares issued and outstanding     382,820       382,820  
Additional paid-in capital     19,635,341       19,624,063  
Accumulated deficit     (13,235,254 )     (12,201,103 )
Total Shareholders' Equity      6,782,907       7,805,780  
Total Liabilities and Shareholders' Equity  $   12,747,837    $    13,147,986  
             
See notes to the condensed consolidated financial statements      
       

 

The Singing Machine Company, Inc. and Subsidiaries    
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS    
(Unaudited)    
           
           
  For the Three Months Ended  
  June 30, 2018     June 30, 2017  
           
           
Net Sales $   1,836,511     $   3,939,733  
           
Cost of Goods Sold   1,445,028       2,860,584  
           
Gross Profit   391,483       1,079,149  
           
Operating Expenses          
Selling expenses 446,700       463,747  
General and administrative expenses 1,208,644       1,359,231  
Depreciation   67,571       43,213  
Total Operating Expenses 1,722,915       1,866,191  
           
Loss from Operations (1,331,432 )     (787,042 )
           
Other Expenses          
Interest expense (23,385 )     (283 )
Finance costs (3,334 )     (21,606 )
Total Other Expenses (26,719 )     (21,889 )
           
Loss Before Income Tax Benefit (1,358,151 )     (808,931 )
           
Income Tax Benefit 324,000       281,921  
           
Net Loss $   (1,034,151 )   $   (527,010 )
           
Loss per Common Share          
Basic and Diluted $   (0.03 )   $   (0.01 )
           
Weighted Average Common and Common           
Equivalent Shares:          
Basic and Diluted 38,282,028       38,259,303  
           
See notes to the condensed consolidated financial statements    
           

 

The Singing Machine Company, Inc. and Subsidiaries    
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS    
(Unaudited)    
     
  For the Three Months Ended   
  June 30, 2018     June 30, 2017  
           
           
Cash flows from operating activities          
Net Loss $   (1,034,151 )   $   (527,010 )
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation    67,571       43,213  
Amortization of deferred financing costs   3,334       21,606  
Change in inventory reserve    (81,780 )     (375,000 )
Change in allowance for bad debts   (18,629 )     (6,028 )
Stock based compensation   11,278       55,237  
Change in net deferred tax assets   (323,999 )     (283,126 )
Changes in operating assets and liabilities:          
Accounts receivable   (127,637 )     (1,100,703 )
Due from PNC Bank   6,212       242,859  
Accounts receivable - related parties   856,453       (557,647 )
Inventories   (216,216 )     (2,651,450 )
Prepaid expenses and other current assets   (135,019 )     (316,343 )
Other non-current assets   (516 )     -   
Accounts payable    72,907       3,140,580  
Accrued expenses   63,103       99,956  
Due to related parties   133,454       149,787  
Refunds due to customers   (189,330 )     69,715  
Reserve for sales returns   (588,464 )     (338,791 )
Net cash used in operating activities   (1,501,429 )     (2,333,145 )
Cash flows from investing activities          
Purchase of property and equipment   (282,240 )     (185,336 )
Net cash used in investing activities   (282,240 )     (185,336 )
Cash flows from financing activities          
Net proceeds from revolving  line of credit    1,089,822       683,986  
Net proceeds from bank term note   -        1,000,000  
Payment of deferred financing costs   -        (40,000 )
Payment on subordinated debt - related party   -        (1,000,000 )
Payments on capital leases   (2,294 )     -   
Net cash provided by financing activities   1,087,528       643,986  
Net change in cash    (696,141 )     (1,874,495 )
           
Cash at beginning of period   813,908       2,305,439  
Cash at end of period $   117,767     $   430,944  
           
Supplemental disclosures of cash flow information:          
Cash paid for interest $   9,995     $   283  
Cash paid for income taxes     $   30,000  
Equipment purchased under capital lease $   43,526     $  
           
See notes to the condensed consolidated financial statements    
           

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