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Singing Machine Announces Third Quarter 2019 Earnings Report

FORT LAUDERDALE, Fla., Feb. 14, 2019 (GLOBE NEWSWIRE) -- via NEWMEDIAWIRE -- The Singing Machine Company, Inc.  (“Singing Machine” or the “Company”) (OTCQX: SMDM) – the worldwide leader in consumer karaoke products – today announced its financial results for its third quarter ended December 31, 2018.

Third Quarter Snapshot:

  • Net sales of $19.5 million for the quarter ended December 31, 2018.
  • Gross margin improved by 1% from 27.9% to 28.9%.
  • Inventory for quarter-end reduced by $2.5M from March 31, 2018.
  • Income from operations of $1.8M.
  • Net Income improved to $1.3M for the quarter ($0.03 per share).
  • 56% increase in music subscription revenue YoY.             

Singing Machine reports net sales of approximately $19.5 million for the quarter-ended December 31, 2018 period, compared to $21.5 million in the same period last year.  The decrease in net sales from the same period in the prior year was primarily due to the bankruptcy of Toys ‘R’ Us, which accounted for approximately $3.7 million of the decrease which was offset by an increase in sales of approximately $1.4 million to an existing major customer due to the timing of shipments shifting from the previous quarter to the current quarter.

The Company reported gross profit margin improved by 1% from 27.9% to 28.9% from the same quarter last year.  The increase in gross margin was mainly due to better costing from factories in Asia due to the stronger US dollar.  Total operating expenses increased to $3.8 million from $3.6 million in the prior year.  The increase was primarily due to an increase in selling expenses including commissions, marketing expenses, and co-op advertising programs granted to retail customers.

As a result, the Company reported a slight increase in net profit of $1.3 million ($0.03 per share on a fully diluted basis) compared to approximately $1.2 million in the prior year.

Management Commentary:

Gary Atkinson, Singing Machine CEO, commented, “During the third quarter, we continued to see strong demand for in-home music and singing entertainment, however we did not see any major retailers significantly replace the lost sales from the bankruptcy of Toys ‘R’ Us. We remain confident that the category is strong and that the industry will ultimately recover those lost sales caused by the liquidation of Toys ‘R’ Us.  Despite the rapidly changing retail market, we remain the dominant worldwide market leader in the industry and are currently focused on organic growth through partnerships and some exciting licensing opportunities that will soon be announced.”

Bernardo Melo, VP of Sales & Marketing, commented, “Aside from partnerships and licenses, our primary growth strategy remains focused on expanded international distribution.  We recently attended the Nuremberg Toy Fair, one of the largest international toy fairs in the world.  We saw large untapped territories for karaoke and experienced a lot of success in the new markets that launched Singing Machine product this past fall.  We look forward to carrying that momentum into 2019.”

Earnings Call Information:

The Company will host a conference call today, Thursday, February 14, 2019, 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 877-876-9174 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:

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 14,000 songs for streaming and download.  Singing Machine products are sold through most major retailers in North America and also internationally. See for more details.

Investor Relations Contact:
Brendan Hopkins
(407) 645-5295

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, 2018.  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 
  December 31, 2018March 31, 2018
Current Assets  
 Cash $  1,581,245 $  813,908 
 Accounts receivable, net of allowances of $244,300 and   
  $82,102, respectively   10,601,844    1,066,839 
 Due from PNC Bank   -     6,212 
 Accounts receivable related party - Starlight Consumer Electronics USA, Inc.   7,054    7,054 
 Accounts receivable related party - Cosmo Communications Canada, Inc   199,707    -  
 Accounts receivable related party - Winglight Pacific, Ltd   1,465,977    1,150,104 
 Inventories, net   6,118,569    8,536,934 
 Prepaid expenses and other current assets   112,383    137,970 
 Deferred financing costs   13,333    13,333 
      Total Current Assets   20,100,112    11,732,354 
Property and equipment, net   582,434    450,305 
Deferred financing costs, net of current portion   6,667    16,667 
Deferred tax assets    515,136    937,137 
Other non-current assets   12,039    11,523 
      Total Assets$  21,216,388 $  13,147,986 
Liabilities and Shareholders' Equity  
Current Liabilities  
 Accounts payable$  3,359,610 $  1,614,748 
 Accrued expenses   1,738,631    701,932 
 Current portion of bank term note payable   250,000    500,000 
 Due to related party - Starlight Electronics Co., Ltd   468,256    210,756 
 Due to related party - Starlight R&D, Ltd.   110,846    113,116 
 Due to related party - Merrygain Holding Co., Ltd.   128,290    89,803 
 Revolving line of credit   2,931,118    -  
 Refunds due to customers   -     445,484 
 Reserve for sales returns   2,050,486    726,000 
 Current portion of capital leases   14,282    -  
 Current portion of subordinated related party debt - Starlight Marketing Development, Ltd.   815,367    689,792 
      Total Current Liabilities   11,866,886    5,091,631 
Bank term note payable, net of current portion   -     125,000 
Capital leases, net of current portion   21,152    -  
Subordinated related party debt - Starlight Marketing Development, Ltd.,  
 net of current portion   -     125,575 
      Total Liabilities   11,888,038    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;   
 38,384,753 and 38,282,028 shares issued and outstanding, respectively   383,848    382,820 
 Additional paid-in capital   19,672,314    19,624,063 
 Accumulated deficit   (10,727,812)   (12,201,103)
      Total Shareholders' Equity    9,328,350    7,805,780 
      Total Liabilities and Shareholders' Equity $  21,216,388 $  13,147,986 
See notes to the condensed consolidated financial statements 


The Singing Machine Company, Inc. and Subsidiaries 
    For the Quarter Ended For the Nine Months Ended 
    December 31, 2018December 31, 2017 December 31, 2018 December 31, 2017 
Net Sales $  19,452,450 $  21,461,835  $  45,593,906  $  58,203,731  
Cost of Goods Sold   13,826,176    15,464,273     34,369,467     43,389,465  
Gross Profit   5,626,274    5,997,562     11,224,439     14,814,266  
Operating Expenses       
 Selling expenses   2,236,777    1,971,728     4,698,141     4,816,931  
 General and administrative expenses   1,629,054    1,739,664     4,341,175     4,784,167  
 Bad debt expense (recovery), net   (104,244)   (164,680)    (155,596)    2,157,561  
 Depreciation   64,357    66,623     200,138     153,225  
Total Operating Expenses   3,825,944    3,613,335     9,083,858     11,911,884  
Income from Operations   1,800,330    2,384,227     2,140,581     2,902,382  
Other Expenses        -   
 Interest expense   (139,729)   (145,922)    (235,290)    (241,503) 
 Finance costs   (3,333)   (3,333)    (10,000)    (28,272) 
Total Other Expenses   (143,062)   (149,255)    (245,290)    (269,775) 
Income Before Income Tax Provision    1,657,268    2,234,972     1,895,291     2,632,607  
Income Tax Provision    (367,255)   (1,080,142)    (422,000)    (1,220,511) 
Net Income $  1,290,013 $  1,154,830  $  1,473,291  $  1,412,096  
Net Income per Common Share       
 Basic  $  0.03 $  0.03  $  0.04  $  0.04  
 Diluted$  0.03 $  0.03  $  0.04  $  0.04  
Weighted Average Common and Common        
 Equivalent Shares:       
 Basic    38,384,753    38,282,028     38,338,599     38,271,946  
 Diluted   39,459,369    39,137,161     39,413,214     39,127,079  
See notes to the condensed consolidated financial statements 


The Singing Machine Company, Inc. and Subsidiaries 
     For the Nine Months Ended 
     December 31, 2018 December 31, 2017 
Cash flows from operating activities     
 Net Income  1,473,291  $   1,412,096  
 Adjustments to reconcile net income to net cash used in operating activities:     
  Depreciation    200,138    153,225  
  Amortization of deferred financing costs   10,000    28,272  
  Change in inventory reserve    (56,780)   (125,000) 
  Change in allowance for bad debts   162,198    2,166,677  
  Stock based compensation   42,879    163,581  
  Change in net deferred tax assets   422,001    576,461  
 Changes in operating assets and liabilities:     
  Accounts receivable   (9,697,203)   (12,844,066) 
  Due from PNC Bank   6,212    242,859  
  Accounts receivable - related parties   (515,580)   (1,213,269) 
  Inventories   2,475,145    (3,599,858) 
  Prepaid expenses and other current assets   25,587    44,483  
  Other non-current assets   (516)   -  
  Accounts payable    1,744,862    3,005,248  
  Accrued expenses   1,036,699    2,121,919  
  Due to related parties   293,717    285,620  
  Refunds due to customers   (445,484)   (38,460) 
  Reserve for sales returns   1,324,486    2,987,357  
   Net cash used in operating activities   (1,498,348)   (4,632,855) 
Cash flows from investing activities     
 Purchase of property and equipment   (288,740)   (255,776) 
   Net cash used in investing activities   (288,740)   (255,776) 
Cash flows from financing activities     
 Net proceeds from revolving line of credit    2,931,118    3,465,332  
 Proceeds from bank term note   -     1,000,000  
 Payment of bank term note   (375,000)   (250,000) 
 Proceeds from exercise of stock options   6,400    -   
 Payment of deferred financing costs   -     (40,000) 
 Payment on subordinated related party debt   -     (1,109,064) 
 Payments on capital leases   (8,093)   -   
   Net cash provided by financing activities   2,554,425    3,066,268  
Net change in cash    767,337    (1,822,363) 
Cash at beginning of period   813,908    2,305,439  
Cash at end of period  1,581,245  $   483,076  
Supplemental disclosures of cash flow information:     
 Cash paid for interest  215,501   222,649  
 Cash paid for income taxes  -    30,000  
 Equipment purchased under capital lease  43,527   -   
See notes to the condensed consolidated financial statements 

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