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 .8 million for the September 30, 2017 quarter.
• Gross profit for the second quarter increased to .7 million compared to .5 million in the prior year.
• Gross margin increased by .5% to 23.6%.
• A .0 million bad debt reserve was taken as a result of the Toys ‘R’ Us bankruptcy.
• The Company reported income before tax of .2 million for the quarter.
• Earnings per share of {$content}.02 per share on a fully diluted basis.

Singing Machine reports net sales of approximately .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 .5 million to .0 million. The increase was primarily due to an increase in bad debt reserve of .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 .4 million.

As a result, the Company reported income before tax of .2 million and net income after tax of approximately {$content}.78 million, or earnings per share of {$content}.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 ,462,490 and 6,555, 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, .00 par value; 1,000,000 shares authorized; no shares issued and outstanding			–			–
	Common stock, Class A, {$content}.01 par value; 100,000 shares authorized; no shares issued and outstanding			–			–
	Common stock, Class B, {$content}.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.