Singing Machine Announces Second Quarter 2018 Earnings Report
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E-mailFORT LAUDERDALE, FL -- (Marketwired) -- 11/14/17 -- 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, March 31,
2017 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, September 30, September 30, September 30,
2017 2016 2017 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, September 30,
2017 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.
Investor Relations Contact: Brendan Hopkins (407) 645-5295 [email protected] www.singingmachine.com www.singingmachine.com/investors Stay connected! Join our investors mailing list: https://singingmachine.com/pages/investor-newsletter
Source: The Singing Machine Company, Inc.
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