Singing Machine Announces First Quarter 2018 Earnings Report

FORT LAUDERDALE, FL--(Marketwired - Aug 14, 2017) - 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, 2017.

First Quarter Highlights:

• Net sales of $3.9 million for the June 30, 2017 quarter.
• Gross margin improved by 3.9% from 23.5% to 27.4%.
• Net loss increased by $0.09 million from $0.44 million to $0.53 million.
• Earnings per share held steady at a loss of $0.01 cent per share compared to the same period last year.
• Related party debt paid down by $2.6 million from approximately $3.1 million to approximately $0.5 million compared to the same period last year.
  
  

Singing Machine reports net sales of approximately $3.9 million for the quarter-ended June 30, 2017 period, a decrease of 19% from the prior year ($4.9 million). The decrease in net sales was primarily a timing issue of special promotional product that shipped early last year in the first quarter but was moved to second quarter of the current fiscal year.

Gross profit margin increased by approximately 3.9% to 27.4% net sales compared to approximately 23.5% of net sales reported in the prior year. The increase in gross profit margin is due to the mix of shipments containing less promotional product compared to last year.

Total operating expenses increased to $1.9 million compared to $1.7 million in the prior year. 

As a result, the Company reported an increase of approximately $220,000 in loss from operations to $790,000 compared to a loss from operations of approximately $570,000 in the same period in the prior year. Net loss for the period increased to $527,000 compared to $437,000 in the prior year representing a loss of $0.01 per share on a fully diluted basis.

Management Commentary:

Gary Atkinson, Singing Machine CEO, commented, "Despite a drop in Q1 net sales, we're still very happy with our progress this fiscal year. We managed to increase gross margin by almost 4% and remain confident about our growth plans for the balance of the fiscal year. Our decline in sales this quarter was the result of retailers requesting more "just-in-time" delivery of promotional product which shifted the bulk of these sales to our second quarter."

Atkinson added, "With the recent addition of Best Buy brick and mortar stores, we move into our peak season with the best and biggest names of retail partners and the largest market share for consumer karaoke products in North America. We also enter our second quarter with a backlog of orders for our new line of SMC Kids toy products, which are being well received by our customers and retailers."

Earnings Call Information:

The Company will host a conference call today, Monday, 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.

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, 2017. 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, 2017				March 31, 2017
					(Unaudited)
Assets
Current Assets
	Cash			$	430,944			$	2,305,439
	Accounts receivable, net of allowances of $126,555 and $132,853, respectively				2,762,249				1,655,518
	Due from PNC Bank				-				242,859
	Accounts receivable related party - Cosmo Communications Canada, Ltd				241,128				-
	Accounts receivable related party - Winglight Pacific, Ltd				310,772				-
	Accounts receivable related party - other				5,747				-
	Inventories, net				8,661,876				5,426,346
	Prepaid expenses and other current assets				397,621				81,278
	Deferred financing costs				13,333				21,606
			Total Current Assets		12,823,670				9,733,046
Property and equipment, net					554,928				412,805
Other non-current assets					11,523				11,523
Deferred financing costs, net of current portion					26,667				-
Deferred tax asset					1,762,335				1,479,209
			Total Assets	$	15,179,123			$	11,636,583
Liabilities and Shareholders' Equity
Current Liabilities
	Accounts payable			$	4,522,451			$	1,381,870
	Current portion of bank term note payable				500,000				-
	Due to related party - Starlight Electronics Co., Ltd				79,824				-
	Due to related party - Merrygain Holding Co., Ltd				38,487				-
	Due to related party - Starlight Consumer Electronics Co., Ltd.				31,476				-
	Accrued expenses				726,287				626,331
	Revolving line of credit				683,986				-
	Obligations to customers for returns and allowances				108,175				38,460
	Warranty provisions				93,989				223,700
	Current portion of subordinated related party debt - Starlight Marketing Development, Ltd.				446,406				1,924,431
			Total Current Liabilities		7,231,081				4,194,792
Bank term note payable, net of current portion					500,000				-
Subordinated related party debt - Starlight Marketing Development, Ltd., net of current portion					478,025				-
		Total Liabilities			8,209,106				4,194,792
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; 38,259,303 and 38,259,303 shares issued and outstanding, respectively				382,593				382,593
	Additional paid-in capital				19,468,024				19,412,787
	Accumulated deficit				(12,880,600	)			(12,353,589	)
			Total Shareholders' Equity		6,970,017				7,441,791
			Total Liabilities and Shareholders' Equity	$	15,179,123			$	11,636,583
See notes to the condensed consolidated financial statements.

The Singing Machine Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
		For Three Months Ended
		June 30, 2017				June 30, 2016
Net Sales		$	3,939,733			$	4,859,392
Cost of Goods Sold			2,860,584				3,715,709
Gross Profit			1,079,149				1,143,683
Operating Expenses
	Selling expenses		463,747				424,878
	General and administrative expenses		1,359,231				1,246,851
	Depreciation		43,213				43,795
Total Operating Expenses			1,866,191				1,715,524
Loss from Operations			(787,042	)			(571,841	)
Other Expenses
	Interest expense		(283	)			(16,027	)
	Financing costs		(21,606	)			(18,519	)
Total Other Expenses			(21,889	)			(34,546	)
Loss Before Income Tax Benefit			(808,931	)			(606,387	)
Income Tax Benefit			281,921				169,314
Net Loss			(527,010	)		$	(437,073	)
Loss per Common Share
	Basic and Diluted	$	(0.01	)		$	(0.01	)
Weighted Average Common and Common
Equivalent Shares:
	Basic and Diluted		38,259,303				38,181,635
See notes to the condensed consolidated financial statements.

The Singing Machine Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
					For Three Months Ended
					June 30, 2017			June 30, 2016
Cash flows from operating activities:
	Net Loss				$	(527,010	)	$	(437,073	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation				43,213			43,795
		Amortization of deferred financing costs				21,606			18,519
		Change in inventory reserve				(375,000	)		66,000
		Change in allowance for bad debts				(6,028	)		23,319
		Stock based compensation				55,237			9,329
		Change in net deferred tax asset				(283,126	)		(198,588	)
	Changes in operating assets and liabilities:
		(Increase) decrease in:
			Accounts receivable			(1,100,703	)		(2,092,830	)
			Due from PNC Bank			242,859			183,531
			Accounts receivable - related parties			(557,647	)		(325,333	)
			Inventories			(2,860,530	)		(4,742,982	)
			Prepaid expenses and other current assets			(316,343	)		(33,205	)
			Other non-current assets			-			(129	)
		Increase (decrease) in:
			Accounts payable			3,140,580			5,604,524
			Due to related parties			149,787			521,648
			Accrued expenses			99,956			84,161
			Obligations to clients for returns and allowances			69,715			(98,678	)
			Warranty provisions			(129,711	)		(99,237	)
				Net cash used in operating activities		(2,333,145	)		(1,473,229	)
Cash flows from investing activities:
	Purchase of property and equipment					(185,336	)		(65,531	)
				Net cash used in investing activities		(185,336	)		(65,531	)
Cash flows from financing activities:
	Net proceeds from revolving line of credit					683,986			-
	Proceeds from bank term note					1,000,000			-
	Proceeds from exercise of stock options					-			6,400
	Payment of deferred financing costs					(40,000	)		-
	Payment on note payable related party - Ram Light Management, Ltd.					-			(138,537	)
	Payment on subordinated debt - related party					(1,000,000	)		-
	Payments on capital lease					-			(1,078	)
				Net cash provided by (used in) financing activities		643,986			(133,215	)
Net change in cash						(1,874,495	)		(1,671,975	)
Cash at beginning of period						2,305,439			2,116,490
Cash at end of period					$	430,944		$	444,515
Supplemental disclosures of cash flow information:
	Cash paid for interest				$	283		$	15,027
	Cash paid for income taxes				$	30,000		$	-
See notes to the condensed consolidated financial statements.