SOURCE: The Singing Machine Company, Inc.

The Singing Machine Company, Inc.

August 14, 2017 07:00 ET

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.  
             

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