SOURCE: The Singing Machine Company, Inc.

The Singing Machine Company, Inc.

November 14, 2017 07:00 ET

Singing Machine Announces Second Quarter 2018 Earnings Report

FORT LAUDERDALE, FL--(Marketwired - Nov 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 second quarter ended September 30, 2017.

Second Quarter Highlights:

  • Net sales increased by 17% to $32.8 million for the September 30, 2017 quarter.
  • Gross profit for the second quarter increased to $7.7 million compared to $6.5 million in the prior year.
  • Gross margin increased by .5% to 23.6%.
  • A $2.0 million bad debt reserve was taken as a result of the Toys 'R' Us bankruptcy.
  • The Company reported income before tax of $1.2 million for the quarter.
  • Earnings per share of $0.02 per share on a fully diluted basis.

Singing Machine reports net sales of approximately $32.8 million for the quarter-ended September 30, 2017 period, an increase of 17% from the prior year. The increase in net sales was primarily the result of an increase in new shipments to a large retailer and an increase in e-commerce sales to another major retailer this holiday season.

Gross profit margin increased by approximately 0.5% to 23.6% net sales compared to approximately 23.1% of net sales reported in the prior year. The increase in gross profit margin is due to slightly better margin on new promotional shipments for the holidays.

General and administrative expenses increased by $2.5 million to $4.0 million. The increase was primarily due to an increase in bad debt reserve of $2.1 million which was the result of the Toys 'R' Us bankruptcy filing in September 2017. As a result of the bad debt reserve, total operating expenses for the second quarter increased to $6.4 million.

As a result, the Company reported income before tax of $1.2 million and net income after tax of approximately $0.78 million, or earnings per share of $0.02 cents.

Management Commentary:

Gary Atkinson, Chief Executive Officer of Singing Machine, commented, "This quarter we experienced a short-term disruption to our operating profit as a direct result of the Toys 'R' Us bankruptcy. However, we are very pleased with the business results of this quarter, notably the 17% growth to top line sales and improvement to gross margin. We have continued to ship product to Toys 'R' Us post-bankruptcy and we continue to work with them to make sure they are fully stocked for this holiday season. We don't anticipate any lost sales to Toys 'R' Us this year and remain hopeful they will emerge from the bankruptcy as a stronger retailer."

Bernardo Melo, Vice President of Sales, commented, "We're excited to be heading into our peak season with the biggest, most reputable list of retailers and eTailers. With the addition of Best Buy brick and mortar stores as well as major promotional ads running with every major retailer, we're well positioned to take advantage of the forecasted increase in home entertainment spending this season. This quarter we saw strong trends on our core karaoke lines of products and our new SMC Kids Toy line is off to a hot start. There are already a few clear winners that should be must-have toys for parents and kids this holiday season."

Earnings Call Information:

Date: Tuesday, November 14, 2017
Time: 10 a.m. ET
Dial-in number: (800) 459-5343
Conference ID: SMDM

An audio rebroadcast of the call will be available later in the day at: http://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  
   
  September 30, 2017   March 31, 2017  
  (Unaudited)      
Assets            
Current Assets            
  Cash $ 288,387   $ 2,305,439  
  Accounts receivable, net of allowances of $2,462,490 and $126,555, respectively   28,611,492     1,655,518  
  Due from PNC Bank   -     242,859  
  Accounts receivable related party - Cosmo Communications Canada, Ltd   52,984     -  
  Accounts receivable related party - Winglight Pacific, Ltd   1,110,479     -  
  Accounts receivable related party - other   6,625     -  
  Inventories, net   14,204,966     5,426,346  
  Prepaid expenses and other current assets   93,558     81,278  
  Deferred financing costs   13,336     21,606  
    Total Current Assets   44,381,827     9,733,046  
             
Property and equipment, net   575,787     412,805  
Other non-current assets   11,523     11,523  
Deferred financing costs, net of current portion   23,331     -  
Deferred tax asset   1,340,044     1,479,209  
    Total Assets $ 46,332,512   $ 11,636,583  
             
Liabilities and Shareholders' Equity            
Current Liabilities            
  Accounts payable $ 22,198,691   $ 1,381,870  
  Current portion of bank term note payable   500,000     -  
  Due to related party - Starlight Electronics Co., Ltd   30,121     -  
  Due to related party - Merrygain Holding Co.,Ltd   12,829     -  
  Due to related party - Starlight R&D, Ltd.   114,629     -  
  Accrued expenses   1,955,552     626,331  
  Revolving line of credit   11,548,522     -  
  Obligations to customers for returns and allowances   36,917     38,460  
  Warranty provisions   930,168     223,700  
  Current portion of subordinated related party debt - Starlight Marketing Development, Ltd.   452,948     1,924,431  
    Total Current Liabilities   37,780,377     4,194,792  
             
Bank term note payable, net of current portion   375,000     -  
Subordinated related party debt - Starlight Marketing Development, Ltd., net of current portion   362,419     -  
    Total Liabilities   38,517,796     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; 38,282,028 and 38,259,303 shares issued and outstanding, respectively   382,820     382,593  
  Additional paid-in capital   19,528,219     19,412,787  
  Accumulated deficit   (12,096,323 )   (12,353,589 )
    Total Shareholders' Equity   7,814,716     7,441,791  
    Total Liabilities and Shareholders' Equity $ 46,332,512   $ 11,636,583  
             
See notes to the condensed consolidated financial statements.  
   
   
The Singing Machine Company, Inc. and Subsidiaries  
CONDENSED CONSOLIDATED STATEMENTS OF INCOME  
(Unaudited)  
                 
                 
  For Three Months Ended   For Six Months Ended  
  September 30, 2017   September 30, 2016   September 30, 2017   September 30, 2016  
                         
                         
Net Sales $ 32,802,163   $ 28,129,051   $ 36,741,896   $ 32,988,443  
                         
Cost of Goods Sold   25,064,608     21,626,419     27,925,192     25,342,128  
                         
Gross Profit   7,737,555     6,502,632     8,816,704     7,646,315  
                         
Operating Expenses                        
  Selling expenses   2,381,456     2,227,223     2,845,203     2,652,101  
  General and administrative expenses   4,007,513     1,467,131     5,366,744     2,713,982  
  Depreciation   43,389     43,795     86,602     87,590  
Total Operating Expenses   6,432,358     3,738,149     8,298,549     5,453,673  
                         
Income from Operations   1,305,197     2,764,483     518,155     2,192,642  
                         
Other Expenses                        
  Interest expense   (95,298 )   (67,038 )   (95,581 )   (83,065 )
  Financing costs   (3,333 )   (18,520 )   (24,939 )   (37,039 )
Total Other Expenses   (98,631 )   (85,558 )   (120,520 )   (120,104 )
                         
Income Before Income Tax Provision   1,206,566     2,678,925     397,635     2,072,538  
                         
Income Tax Provision   (422,290 )   (868,449 )   (140,369 )   (699,135 )
                         
Net Income $ 784,276   $ 1,810,476   $ 257,266   $ 1,373,403  
                         
Income per Common Share                        
  Basic $ 0.02   $ 0.05   $ 0.01   $ 0.04  
  Diluted $ 0.02   $ 0.05   $ 0.01   $ 0.04  
                         
Weighted Average Common and Common                        
Equivalent Shares:                        
  Basic   38,274,371     38,205,186     38,266,878     38,193,247  
  Diluted   39,160,863     38,980,571     39,153,371     38,968,632  
 
See notes to the condensed consolidated financial statements.
   
   
The Singing Machine Company, Inc. and Subsidiaries  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited)  
  For Six Months Ended  
  September 30, 2017   September 30, 2016  
             
             
Cash flows from operating activities:            
  Net Income $ 257,266   $ 1,373,403  
  Adjustments to reconcile net income to net cash used in operating activities:            
    Depreciation   86,602     87,590  
    Amortization of deferred financing costs   24,939     37,039  
    Change in inventory reserve   (375,000 )   90,000  
    Change in allowance for bad debts   2,329,907     232,510  
    Stock based compensation   115,659     37,014  
    Change in net deferred tax asset   139,165     669,861  
  Changes in operating assets and liabilities:            
    (Increase) decrease in:            
    Accounts receivable   (29,285,881 )   (16,991,782 )
    Due from PNC Bank   242,859     184,392  
    Accounts receivable - related parties   (1,170,088 )   (610,604 )
    Inventories   (8,403,620 )   (5,025,669 )
    Prepaid expenses and other current assets   (12,280 )   38,241  
    Other non-current assets   -     (129 )
  Increase (decrease) in:            
    Accounts payable   20,816,821     9,421,489  
    Due to related parties   157,579     (297,336 )
    Accrued expenses   1,329,221     1,316,102  
    Obligations to customers for returns and allowances   (1,543 )   (101,199 )
    Warranty provisions   706,468     567,372  
      Net cash used in operating activities   (13,041,925 )   (8,971,706 )
Cash flows from investing activities:            
  Purchase of property and equipment   (249,584 )   (76,428 )
      Net cash used in investing activities   (249,584 )   (76,428 )
Cash flows from financing activities:            
  Net proceeds from revolving line of credit   11,548,522     8,103,991  
  Proceeds from bank term note   1,000,000     -  
  Payment of bank term note   (125,000 )   -  
  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.   -     (229,163 )
  Payment on subordinated debt - related party   (1,109,064 )   -  
  Payments on capital lease   -     (1,078 )
      Net cash provided by financing activities   11,274,458     7,880,150  
Net change in cash   (2,017,052 )   (1,167,984 )
             
Cash at beginning of period   2,305,439     2,116,490  
Cash at end of period $ 288,387   $ 948,506  
             
Supplemental disclosures of cash flow information:            
  Cash paid for interest $ 76,868   $ 53,107  
  Cash paid for income taxes $ 30,000   $ -  
             
See notes to the condensed consolidated financial statements.  

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