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Singing Machine Announces Second Quarter 2019 Earnings Report

November 14, 2018

FORT LAUDERDALE, Fla., Nov. 14, 2018 (GLOBE NEWSWIRE) -- 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 second quarter ended September 30, 2018.

Second Quarter Snapshot:

-- Net sales of $24.3 million for the quarter ended September 30, 2018. -- Gross margin of 21.4%. -- Operating Expenses reduced by 45% compared to the prior year second quarter. -- Net Income improved by 55% to $1.2 million for the quarter ($0.03 per share).

Singing Machine reports net sales of approximately $24.3 million for the quarter-ended September 30, 2018 period, compared to $32.8 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 $5.4 million of the decrease.

The Company reported gross profit margin of 21.4%. The decrease in gross margin was mainly due a higher mix of promotional products that shipped in the second quarter compared to the same period last year. Total operating expenses decreased by $2.9 million, from $6.4 million to $3.5 million. The reduction in expenses was primarily due to a reduction in bad debt reserve of approximately $2.2 million and an 18% reduction in general & administrative expenses.

As a result, the Company reported an increase in net profit of $1.2 million ($0.03 per share on a fully diluted basis) compared to approximately $0.78 million in the prior year.

Management Commentary:

Gary Atkinson, Singing Machine CEO, commented, “During the second quarter we continued to see the impact of the liquidation of Toys ‘R’ Us on our business. We had success launching new, hot products this year, such as the Singing Machine Studio and the new Kids’ Pedestal which won one of Parents Magazine best toys of 2018. Despite success with these new product launches, we have not yet been able to open up enough new distribution to offset the loss of Toys ‘R’ Us.”

Atkinson added, “While the financials do not yet to reflect a lot of the hard work we are doing year-to-date, we are positioning the Company for future re-growth through diversification outside of our core karaoke lineup and new distribution channels both domestically and abroad.”

Bernardo Melo, VP of Sales & Marketing, commented, “We recently concluded a major toy show in Hong Kong where we debuted our new product lineup for 2019, including our new Kids and core Karaoke lines of products. We saw a highly enthusiastic reception to our Product assortments for 2019. As we enter the holiday season, look for Singing Machine to continue to be a leader in the category with highly visible holiday promotions, aggressive marketing, and best-in-class product and value offerings at all of our retailers.”

Earnings Call Information:

The Company will host a conference call today, Wednesday, November 14, 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.com www.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 September 30, March 31, 2018 2018 (Unaudited) Assets Current Assets Cash $ 1,754,729 $ 813,908 Accounts receivable, net of allowances of $368,021 and $82,102 respectively 19,933,354 1,066,839 Accounts receivable related party - Starlight Consumer Electronics USA, Inc. 7,054 7,054 Accounts receivable related party - Cosmo Communications Canada, Inc 567,123 - Accounts receivable related party - Winglight Pacific, Ltd 1,444,519 1,150,104 Inventories, net 12,894,732 8,536,934 Prepaid expenses and other current assets 303,362 137,970 Deferred financing costs 13,333 13,333 Total Current Assets 36,918,206 11,732,354 Property and equipment, net 646,790 450,305 Deferred financing costs, net of current portion 10,000 16,667 Deferred tax assets 882,391 937,137 Other non-current assets 12,039 11,523 Total Assets $ 38,469,426 $ 13,147,986 - ----------- - - ----------- - Liabilities and Shareholders’ Equity Current Liabilities Accounts payable 18,654,847 1,614,748 Accrued expenses 1,533,119 701,932 Current portion of bank term note payable 375,000 500,000 Due to related party - Starlight Electronics Co., Ltd 391,380 210,756 Due to related party - Starlight R&D, Ltd. 111,600 113,116 Due to related party - Merrygain Holding Co., Ltd. 128,290 89,803 Revolving line of credit 6,877,610 - Customer deposits 36,691 - Refunds due to customers 11,184 445,484 Reserve for sales returns 1,466,627 726,000 Current portion of capital leases 14,151 - Current portion of subordinated related party debt - Starlight Marketing 815,367 689,792 Development, Ltd. - ----------- - - ----------- - Total Current Liabilities 30,415,866 5,091,631 Bank term note payable, net of current portion - 125,000 Capital leases, net of current portion 24,772 - Subordinated related party debt - Starlight Marketing Development, Ltd., net - 125,575 of current portion Total Liabilities 30,440,638 5,342,206 - ----------- - - ----------- - Commitments and Contingencies Shareholders’ Equity Preferred stock, $1 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; 383,847 382,820 38,384,753 and 38,282,028 shares issued and outstanding, respectively Additional paid-in capital 19,662,766 19,624,063 Accumulated deficit (12,017,825 ) (12,201,103 ) - ----------- - - ----------- - Total Shareholders’ Equity 8,028,788 7,805,780 Total Liabilities and Shareholders’ Equity $ 38,469,426 $ 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 Three Months Ended For the Six Months Ended September 30, September 30, September 30, September 30, 2018 2017 2018 2017 Net Sales $ 24,304,945 $ 32,802,163 $ 26,141,456 $ 36,741,896 Cost of Goods Sold 19,098,263 25,064,608 20,543,291 27,925,192 - ---------- - - ---------- - - ---------- - - ---------- - Gross Profit 5,206,682 7,737,555 5,598,165 8,816,704 Operating Expenses Selling expenses 2,014,664 2,381,456 2,461,364 2,845,203 General and administrative expenses 1,364,102 1,672,001 2,712,121 3,044,503 Bad debt expense (recovery), net 88,023 2,335,512 (51,352 ) 2,322,241 Depreciation 68,210 43,389 135,781 86,602 Total Operating Expenses 3,534,999 6,432,358 5,257,914 8,298,549 - ---------- - - ---------- - - ---------- - - ---------- - Income from Operations 1,671,683 1,305,197 340,251 518,155 Other Expenses Interest expense (72,176 ) (95,298 ) (95,561 ) (95,581 ) Finance costs (3,333 ) (3,333 ) (6,667 ) (24,939 ) - ---------- - - ---------- - - ---------- - - ---------- - Total Other Expenses (75,509 ) (98,631 ) (102,228 ) (120,520 ) - ---------- - - ---------- - - ---------- - - ---------- - Income Before Income Tax Provision 1,596,174 1,206,566 238,023 397,635 Income Tax Provision (378,745 ) (422,290 ) (54,745 ) (140,369 ) - ---------- - - ---------- - - ---------- - - ---------- - Net Income $ 1,217,429 $ 784,276 $ 183,278 $ 257,266 - ---------- - - ---------- - - ---------- - - ---------- - Net Income per Common Share Basic $ 0.03 $ 0.02 $ 0.00 $ 0.01 Diluted $ 0.03 $ 0.02 $ 0.00 $ 0.01 Weighted Average Common and Common Equivalent Shares: Basic 38,348,400 38,274,371 38,315,395 38,266,878 Diluted 39,530,880 39,160,863 39,497,875 39,153,371 See notes to the condensed consolidated financial statements

The Singing Machine Company, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Six Months Ended ------------------------------- September 30, September 30, 2018 2017 --------------- --------------- Cash flows from operating activities Net Income $ 183,278 $ 257,266 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 135,781 86,602 Amortization of deferred financing costs 6,667 24,939 Change in inventory reserve (81,780 ) (375,000 ) Change in allowance for bad debts 285,919 2,329,907 Stock based compensation 33,330 115,659 Change in net deferred tax assets 54,746 139,165 Changes in operating assets and liabilities: Accounts receivable (19,152,434 ) (29,285,881 ) Due from PNC Bank 6,212 242,859 Accounts receivable - related parties (861,538 ) (1,170,088 ) Inventories (4,276,018 ) (9,601,863 ) Prepaid expenses and other current assets (165,392 ) (12,280 ) Other non-current assets (516 ) - Accounts payable 17,040,099 20,816,821 Accrued expenses 831,187 1,329,221 Due to related parties 217,595 157,579 Customer deposits 36,691 (1,543 ) Refunds due to customers (434,300 ) - Reserve for sales returns 740,627 1,904,711 Net cash used in operating activities (5,399,846 ) (13,041,925 ) - ----------- - - ----------- - Cash flows from investing activities Purchase of property and equipment (288,740 ) (249,584 ) Net cash used in investing activities (288,740 ) (249,584 ) - ----------- - - ----------- - Cash flows from financing activities Net proceeds from revolving line of credit 6,877,610 11,548,522 Net proceeds from bank term note - 1,000,000 Payment of bank term note (250,000 ) (125,000 ) Proceeds from exercise of stock options 6,400 - Payment of deferred financing costs - (40,000 ) Payment on subordinated debt - related - (1,109,064 ) party Payments on capital leases (4,603 ) - Net cash provided by financing activities 6,629,407 11,274,458 - ----------- - - ----------- - Net change in cash 940,821 (2,017,052 ) Cash at beginning of period 813,908 2,305,439 - ----------- - - ----------- - Cash at end of period $ 1,754,729 $ 288,387 - ----------- - - ----------- - Supplemental disclosures of cash flow information: Cash paid for interest $ 52,513 $ 76,868 - ----------- - - ----------- - Cash paid for income taxes $ - $ 30,000 - ----------- - - ----------- - Equipment purchased under capital lease $ 43,526 $ - - ----------- - - ----------- - See notes to the condensed consolidated financial statements

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