AP NEWS
This content is a press release from our partner Globe Newswire. The AP newsroom and editorial departments were not involved in its creation.
PRESS RELEASE from provider: Globe Newswire
This content is a press release from our partner Globe Newswire. The AP newsroom and editorial departments were not involved in its creation.

Singing Machine Announces Third Quarter 2019 Earnings Report

February 14, 2019

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: 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 14,000 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.

Investor Relations Contact:Brendan Hopkins(407) 645-5295investors@singingmachine.com www.singingmachine.comwww.singingmachine.com/investors

Forward-Looking StatementsThis 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 CONDENSED CONSOLIDATED BALANCE SHEETS December 31, March 31, 2018 2018 (Unaudited) Assets 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 815,367 689,792 Development, Ltd. - ----------- - - ----------- - 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 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) For the Quarter Ended For the Nine Months Ended December 31, December 31, December 31, December 31, 2018 2017 2018 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 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended ---------------------------- December 31, December 31, 2018 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