Singing Machine Reports Fiscal 2019 Annual Earnings Report

Fort Lauderdale, UNITED STATES


Fort Lauderdale, FL, July 01, 2019 (GLOBE NEWSWIRE) -- 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 full fiscal year ended March 31, 2019.

Full Fiscal 2019 Highlights:

  • Net sales for the fiscal year of $46.5 million.
  • Gross profit of $11.8 million or 25.3% of total revenue compared to 25.8% in the prior year.
  • Income from operations $1.0 million for the fiscal year.
  • Net income improved by 315% to $0.63 million compared to $0.15 million in the prior year.
  • Inventory reduced by 30% from $8.5 million in the prior year to $6.0 million.

Singing Machine reports net sales of approximately $46.5 million for the March 31, 2019 fiscal year-end period, compared to approximately $60.8 million in the prior year. The decrease in net sales is primarily due to the loss of Toys ‘R’ Us as a major customer.

Gross profit margin held steady to 25.3% compared to 25.8% in the prior year. Due to the decrease in net sales, gross profit was reported as $11.8 million compared to $15.7 million in the prior year.

Total operating expenses decreased by 27% from $14.7 million in the prior year to approximately $10.7 million for the full fiscal year. A majority of the decrease was due to a partial recovery of the Toys ‘R’ Us bankruptcy administrative claims of approximately $0.5 million compared to a writeoff of bad debt of $3.1 million in the prior year. General and administrative expenses were also reduced by approximately $0.6 million compared to the prior year due to general expense reductions and an increase in service revenue from the Company’s third-party logistics operation.

As a result of the above, income from operations held approximately the same as the prior year at $1.0 million. Net income for the full year was reported as $0.6 million compared to $0.1 million in the prior year.

Management Commentary:

Gary Atkinson, Singing Machine CEO commented, “Fiscal 2019 was a challenging year. We faced numerous market disruptions, most notably the loss of Toys ‘R’ Us. The ongoing trade war between China and the United States continues to cast uncertainty on the supply chain and retail landscapes. However, despite the challenging business environment, the Company accomplished a lot of positive things including maintaining gross margins from last year, reducing inventory by over $2.0 million to generate more cash, maintaining profitability, and signing some big licensing deals.” Atkinson added, “We’re extremely excited for our first big licensed product launch of Carpool Karaoke The Mic officially debuting this month.”

Bernardo Melo, Vice President of Sales, commented, “The overall popularity of music, singing, and karaoke could not be hotter right now. We continue to see the proliferation of singing and karaoke all throughout popular culture and media. Domestically, we had success opening up some new retailers and new departments within existing channels. While those additions did not replace the lost business from Toys ‘R’ Us, we saw them as meaningful new opportunities to grow market share. Fiscal 2019 also saw some positive developments internationally. We made great strides to expand our distribution abroad to new countries like Australia, Sweden, Finland, and Norway, Germany, and Spain.”

Earnings Call Information:

The Company will host a conference call today, Monday, July 1, 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) 876-9173 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 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 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, 2019. 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
CONSOLIDATED BALANCE SHEETS

  March 31, 2019  March 31, 2018 
       
Assets        
Current Assets        
Cash $211,408  $813,908 
Accounts receivable, net of allowances of $51,096 and $82,102, respectively  1,769,404   1,066,839 
Due from PNC Bank  2,236,779   6,212 
Accounts receivable related party - Starlight Consumer Electronics USA, Inc.  -   7,054 
Accounts receivable related party - Winglight Pacific, Ltd  288,941   1,150,104 
Inventories, net  6,024,311   8,536,934 
Prepaid expenses and other current assets  274,278   137,970 
Deferred financing costs  13,333   13,333 
Total Current Assets  10,818,454   11,732,354 
         
Property and equipment, net  522,910   450,305 
Deferred financing costs, net of current portion  3,333   16,667 
Deferred tax assets  758,366   937,137 
Other non-current assets  90,082   11,523 
Total Assets $12,193,145  $13,147,986 
         
Liabilities and Shareholders’ Equity        
Current Liabilities        
Accounts payable $842,708  $1,614,748 
Accrued expenses  950,773   701,932 
Current portion of bank term note payable  125,000   500,000 
Due to related party - Starlight Electronics Co., Ltd  -   210,756 
Due to related party - Starlight R&D, Ltd.  -   113,116 
Due to related party - Merrygain Holding Co., Ltd.  -   89,803 
Refunds due to customers  31,075   445,484 
Reserve for sales returns  896,154   726,000 
Current portion of capital leases  14,414   - 
Current portion of subordinated related party debt - Starlight Marketing Development, Ltd.  815,367   689,792 
Total Current Liabilities  3,675,491   5,091,631 
         
Bank term note payable, net of current portion  -   125,000 
Capital leases, net of current portion  17,499   - 
Subordinated related party debt - Starlight Marketing Development, Ltd., net of current portion  -   125,575 
Total Liabilities  3,692,990   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; 38,464,753 and 38,282,028 shares issued and outstanding, respectively  384,648   382,820 
Additional paid-in capital  19,687,263   19,624,063 
Subscriptions receivable - related party  (2,200)  - 
Accumulated deficit  (11,569,556)  (12,201,103)
Total Shareholders’ Equity  8,500,155   7,805,780 
Total Liabilities and Shareholders’ Equity $12,193,145  $13,147,986 

See notes to the consolidated financial statements

The Singing Machine Company, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME

  For the Years Ended 
  March 31, 2019  March 31, 2018 
       
Net Sales $46,482,998  $60,808,050 
         
Cost of Goods Sold  34,709,799   45,135,272 
         
Gross Profit  11,773,199   15,672,778 
         
Operating Expenses        
Selling expenses  5,117,235   4,875,238 
General and administrative expenses  5,790,019   6,371,541 
Bad debt (recovery) expense  (442,671)  3,203,677 
Depreciation  259,662   219,968 
Total Operating Expenses  10,724,245   14,670,424 
         
Income from Operations  1,048,954   1,002,354 
         
Other Expenses      - 
Interest expense  (244,593)  (273,385)
Finance costs  (13,334)  (31,606)
Total Other Expenses  (257,927)  (304,991)
         
Income Before Income Tax Provision  791,027   697,363 
         
Income Tax Provision  (159,480)  (544,877)
         
Net Income $631,547  $152,486 
         
Net Income per Common Share        
Basic $0.02  $0.00 
Diluted $0.02  $0.00 
         
Weighted Average Common and Common Equivalent Shares:        
Basic  38,360,883   38,274,432 
Diluted  39,244,250   39,553,649 

See notes to the consolidated financial statements

The Singing Machine Company, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS

  For the Years Ended 
  March 31, 2019  March 31, 2018 
       
Cash flows from operating activities        
Net Income $631,547  $152,486 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:        
Depreciation  259,662   219,968 
Amortization of deferred financing costs  13,334   31,606 
Change in inventory reserve  (26,000)  (420,000)
Change in allowance for bad debts  (31,006)  (50,481)
Stock based compensation  52,428   211,503 
Change in net deferred tax assets  178,771   542,072 
Changes in operating assets and liabilities:        
Accounts receivable  (671,559)  639,160 
Due from PNC Bank  (2,230,567)  236,647 
Accounts receivable - related parties  868,217   (1,157,158)
Inventories  2,538,623   (2,314,288)
Prepaid expenses and other current assets  (136,308)  (56,692)
Other non-current assets  (78,559)  - 
Accounts payable  (772,040)  232,878 
Accrued expenses  248,841   75,601 
Due to related parties  (413,675)  413,675 
Refunds due to customers  (414,409)  407,024 
Reserve for sales returns  170,154   126,000 
Net cash provided by (used in) operating activities  187,454   (709,999)
Cash flows from investing activities        
Purchase of property and equipment  (288,741)  (257,468)
Net cash used in investing activities  (288,741)  (257,468)
         
Cash flows from financing activities        
Proceeds from bank term note  -   1,000,000 
Payment of bank term note  (500,000)  (375,000)
Proceeds from exercise of stock options  10,400   - 
Payment of deferred financing costs  -   (40,000)
Payment on subordinated debt - related party  -   (1,109,064)
Payments on capital leases  (11,613)  - 
Net cash used in financing activities  (501,213)  (524,064)
Net change in cash  (602,500)  (1,491,531)
         
Cash at beginning of year  813,908   2,305,439 
Cash at end of year $211,408  $813,908 
         
Supplemental disclosures of cash flow information:        
Cash paid for interest $230,342  $301,748 
Cash paid for income taxes $-  $30,000 
Equipment purchased under capital lease $43,526  $- 

See notes to the consolidated financial statements