SMDM - Singing Machine Announces Third Quarter 2019 Earnings Report

February, 14 2019 07:00 AM Singing Machine Co. Inc.

FORT LAUDERDALE, Fla., Feb. 14, 2019 (GLOBE NEWSWIRE) -- via NEWMEDIAWIRE -- 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 third quarter ended December 31, 2018.

Third Quarter Snapshot:

Net sales of $19.5 million for the quarter ended December 31, 2018.
Gross margin improved by 1% from 27.9% to 28.9%.
Inventory for quarter-end reduced by $2.5M from March 31, 2018.
Income from operations of $1.8M.
Net Income improved to $1.3M for the quarter ($0.03 per share).
56% increase in music subscription revenue YoY.

Singing Machine reports net sales of approximately $19.5 million for the quarter-ended December 31, 2018 period, compared to $21.5 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 $3.7 million of the decrease which was offset by an increase in sales of approximately $1.4 million to an existing major customer due to the timing of shipments shifting from the previous quarter to the current quarter.

The Company reported gross profit margin improved by 1% from 27.9% to 28.9% from the same quarter last year. The increase in gross margin was mainly due to better costing from factories in Asia due to the stronger US dollar. Total operating expenses increased to $3.8 million from $3.6 million in the prior year. The increase was primarily due to an increase in selling expenses including commissions, marketing expenses, and co-op advertising programs granted to retail customers.

As a result, the Company reported a slight increase in net profit of $1.3 million ($0.03 per share on a fully diluted basis) compared to approximately $1.2 million in the prior year.

Management Commentary:

Gary Atkinson, Singing Machine CEO, commented, “During the third quarter, we continued to see strong demand for in-home music and singing entertainment, however we did not see any major retailers significantly replace the lost sales from the bankruptcy of Toys ‘R’ Us. We remain confident that the category is strong and that the industry will ultimately recover those lost sales caused by the liquidation of Toys ‘R’ Us. Despite the rapidly changing retail market, we remain the dominant worldwide market leader in the industry and are currently focused on organic growth through partnerships and some exciting licensing opportunities that will soon be announced.”

Bernardo Melo, VP of Sales & Marketing, commented, “Aside from partnerships and licenses, our primary growth strategy remains focused on expanded international distribution. We recently attended the Nuremberg Toy Fair, one of the largest international toy fairs in the world. We saw large untapped territories for karaoke and experienced a lot of success in the new markets that launched Singing Machine product this past fall. We look forward to carrying that momentum into 2019.”

Earnings Call Information:

The Company will host a conference call today, Thursday, February 14, 2019, 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 MachineÂ® 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 forwardâ€‘looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forwardâ€‘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 forwardâ€‘looking statements speak only as of the date on which they are made and the company does not undertake any obligation to update any forwardâ€‘looking statement to reflect events or circumstances after the date of this release.

The Singing Machine Company, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS










December 31, 2018
March 31, 2018


(Unaudited)

Assets

Current Assets



Cash
$
1,581,245

$
813,908


Accounts receivable, net of allowances of $244,300 and



$82,102, respectively

10,601,844


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 - Cosmo Communications Canada, Inc

199,707


-


Accounts receivable related party - Winglight Pacific, Ltd

1,465,977


1,150,104


Inventories, net

6,118,569


8,536,934


Prepaid expenses and other current assets

112,383


137,970


Deferred financing costs

13,333


13,333


Total Current Assets

20,100,112


11,732,354





Property and equipment, net

582,434


450,305

Deferred financing costs, net of current portion

6,667


16,667

Deferred tax assets

515,136


937,137

Other non-current assets

12,039


11,523


Total Assets
$
21,216,388

$
13,147,986





Liabilities and Shareholders' Equity

Current Liabilities



Accounts payable
$
3,359,610

$
1,614,748


Accrued expenses

1,738,631


701,932


Current portion of bank term note payable

250,000


500,000


Due to related party - Starlight Electronics Co., Ltd

468,256


210,756


Due to related party - Starlight R&D, Ltd.

110,846


113,116


Due to related party - Merrygain Holding Co., Ltd.

128,290


89,803


Revolving line of credit

2,931,118


-


Refunds due to customers

-


445,484


Reserve for sales returns

2,050,486


726,000


Current portion of capital leases

14,282


-


Current portion of subordinated related party debt - Starlight Marketing Development, Ltd.

815,367


689,792


Total Current Liabilities

11,866,886


5,091,631





Bank term note payable, net of current portion

-


125,000

Capital leases, net of current portion

21,152


-

Subordinated related party debt - Starlight Marketing Development, Ltd.,



net of current portion

-


125,575


Total Liabilities

11,888,038


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;



38,384,753 and 38,282,028 shares issued and outstanding, respectively

383,848


382,820


Additional paid-in capital

19,672,314


19,624,063


Accumulated deficit

(10,727,812
)

(12,201,103
)

Total Shareholders' Equity

9,328,350


7,805,780


Total Liabilities and Shareholders' Equity
$
21,216,388

$
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 Quarter Ended

For the Nine Months Ended





December 31, 2018
December 31, 2017

December 31, 2018

December 31, 2017























Net Sales

$
19,452,450

$
21,461,835


$
45,593,906


$
58,203,731













Cost of Goods Sold

13,826,176


15,464,273



34,369,467



43,389,465













Gross Profit

5,626,274


5,997,562



11,224,439



14,814,266













Operating Expenses








Selling expenses

2,236,777


1,971,728



4,698,141



4,816,931



General and administrative expenses

1,629,054


1,739,664



4,341,175



4,784,167



Bad debt expense (recovery), net

(104,244
)

(164,680
)


(155,596
)


2,157,561



Depreciation

64,357


66,623



200,138



153,225


Total Operating Expenses

3,825,944


3,613,335



9,083,858



11,911,884













Income from Operations

1,800,330


2,384,227



2,140,581



2,902,382













Other Expenses






-



Interest expense

(139,729
)

(145,922
)


(235,290
)


(241,503
)


Finance costs

(3,333
)

(3,333
)


(10,000
)


(28,272
)

Total Other Expenses

(143,062
)

(149,255
)


(245,290
)


(269,775
)












Income Before Income Tax Provision

1,657,268


2,234,972



1,895,291



2,632,607













Income Tax Provision

(367,255
)

(1,080,142
)


(422,000
)


(1,220,511
)












Net Income
$
1,290,013

$
1,154,830


$
1,473,291


$
1,412,096













Net Income per Common Share








Basic

$
0.03

$
0.03


$
0.04


$
0.04



Diluted
$
0.03

$
0.03


$
0.04


$
0.04













Weighted Average Common and Common








Equivalent Shares:








Basic


38,384,753


38,282,028



38,338,599



38,271,946



Diluted

39,459,369


39,137,161



39,413,214



39,127,079













*See notes to the condensed consolidated financial statements*

The Singing Machine Company, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)








For the Nine Months Ended






December 31, 2018

December 31, 2017



















Cash flows from operating activities






Net Income
$
1,473,291

$
1,412,096



Adjustments to reconcile net income to net cash used in operating activities:







Depreciation

200,138


153,225




Amortization of deferred financing costs

10,000


28,272




Change in inventory reserve

(56,780
)

(125,000
)



Change in allowance for bad debts

162,198


2,166,677




Stock based compensation

42,879


163,581




Change in net deferred tax assets

422,001


576,461



Changes in operating assets and liabilities:







Accounts receivable

(9,697,203
)

(12,844,066
)



Due from PNC Bank

6,212


242,859




Accounts receivable - related parties

(515,580
)

(1,213,269
)



Inventories

2,475,145


(3,599,858
)



Prepaid expenses and other current assets

25,587


44,483




Other non-current assets

(516
)

-




Accounts payable

1,744,862


3,005,248




Accrued expenses

1,036,699


2,121,919




Due to related parties

293,717


285,620




Refunds due to customers

(445,484
)

(38,460
)



Reserve for sales returns

1,324,486


2,987,357





Net cash used in operating activities

(1,498,348
)

(4,632,855
)

Cash flows from investing activities






Purchase of property and equipment

(288,740
)

(255,776
)




Net cash used in investing activities

(288,740
)

(255,776
)

Cash flows from financing activities






Net proceeds from revolving line of credit

2,931,118


3,465,332



Proceeds from bank term note

-


1,000,000



Payment of bank term note

(375,000
)

(250,000
)


Proceeds from exercise of stock options

6,400


-



Payment of deferred financing costs

-


(40,000
)


Payment on subordinated related party debt

-


(1,109,064
)


Payments on capital leases

(8,093
)

-





Net cash provided by financing activities

2,554,425


3,066,268


Net change in cash

767,337


(1,822,363
)










Cash at beginning of period

813,908


2,305,439


Cash at end of period
$
1,581,245

$
483,076











Supplemental disclosures of cash flow information:






Cash paid for interest
$
215,501

$
222,649



Cash paid for income taxes
$
-

$
30,000



Equipment purchased under capital lease
$
43,527

$
-







*See notes to the condensed consolidated financial statements*

Company Name:	Singing Machine Co. Inc.
Stock Symbol:	SMDM
Market:	OTC
Website:	singingmachine.com

Twitter