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spk_0: the day everyone and welcome to today's singing machine announces first quarter earnings at this time all project friends or analysts normally mode or later you'll have an opportunity to ask questions during the question and answer session you may registered to ask a question at any time a person the star in one on your touchstone phone please note this call may be recorded and i will be standing by if you need any assistance is no my pleasure to turn to for room over to burned in hopkins go ahead
spk_1: more you one of the you for joining us and we have a briefing harbor and then we will get started except for historical information contained herein to the in this conference call for looking statements that i'm a pursuant to the safe harbor provisions of the private securities litigation reform act of nineteen ninety five for looking statements about known and unknown risks and uncertainties that may cause actual results you to periods to differ materially from forecasted results with us said i would like to turn the go over to gary i can see ceo up seeing the ship
spk_2: thank you brian hi everyone good morning thank everybody for attending our first quarter earnings call my name's gary i can send company ceo i'm also joined this morning by lionel marquee company f fo and been are a mellow vp of global sales and marketing i'm sorry the call today by saying it's been a truly historical last few weeks to the company for those that have been following his for a while you will all likely know that to the last fourteen years we have been majority fifty percent owned by a former chinese manufacturing partner
spk_3: last week we close on significant private placement where we raise ten million dollars from from a mix of very large well known well respected us based funds we also have announced that singer ray group or long time to teach a constant partner participated in this recent private place
spk_2: this morning prior to this earnings call we've also announced how we intend to use a large portion of the capital that we raise which is to buy back all of the approximate nineteen point six million shares that was held by the sixty percent majority owner the when affects what we've done as we've restructured are shareholder base by swapping out or large legacy majority shareholder and replacing him with a number of high quality long minded us bonds and our strategic technology and content partners we believe this price private placement and share buyback will be transformative to our business not just from an operational and strategic perspective but also from an important corporate governance perspective by removing the majority owner and replacing that shareholder with multiple institutional and strategic investors today the six of the business will completely different than we did a few weeks ago we are now aligned with investors that wanna see the company grow the have confidence in our business confidence in our management team share our vision for transforming the company and i believe they have the means and the willingness to support us further by removing the majority shareholder we have removed and asked to call that would potentially that would have potentially prevented a future national exchange ah plus application
spk_3: further to all these news all of these transactions will also be completely restructuring a board of directors to include a new appointments from the sting ray group adding myself onto the board and also adding a soon to be named list of well respected individuals from the industry's of retail technology and capital markets we have put a lot of we have a lot of plans with our team is already hard at work pursuing the for now i'll start by saying we're thrilled with what we've accomplished over the last few weeks
spk_2: we look forward to beginning our plans to transform this business from a primarily hardware based company to a more fully integrated technology and hardware software business which recurring revenue so with all that being said i want to turn the call over the line or google help talk us through
spk_3: some of the important first quarter of it
spk_4: the go headliner
spk_5: thank you karen good morning everyone
spk_6: i just wanted to take you to the highlights of to one arm net sales were almost double into one my some three point one million to six point one million
spk_5: it was primarily due to the timing of one major retailer from generally takes their black friday seasonal good anti in the second quarter ah but due to anticipated
spk_6: ah slow down and logistics a logistics issues that were anticipated they place their borders a lot earlier this year and we were able to take advantage of moving some of that revenue not all of it into q what said that accounted for most of the pick up on unrest attack
spk_5: gross profit margin was one point six million versus one million or six hundred thousand dollar increase ah and this again was primarily due to the increase in the black friday shipment of goods to that one major retailer
spk_6: but those goods that this does increase if you will and and gross profit margins was somewhat are set by the fact that we did have the increase in the black friday of good because those good carry significantly less gross profit margin than others direct they don't have any marketing programs associated with i'm not afraid associated with them so they're yield is about nineteen percent compared to normal good censorship domestically that that carry approximately thirty four thirty five percent march so
spk_7: approximately five point five
spk_5: we we did gross profit margins twenty six percent this court versus thirty one point five in the prior to or that was a drop of the that five point five percent operating expenses were two point one million versus one point seven million as an increase of approximately four hundred thousand dollars was mostly and variable selling expenses commissioners royalty and frightening commensurate with the sales increase dna was relatively flat the general administration expenses only increase by approximately six
spk_7: the thousand hours
spk_6: so i'm taking a look at the approached expenses as much as a percentage of sales are operating expenses wrongly thirty four percent of net sales as opposed to fifty seven percent in the last year same quarter as now with keeping the aegean a flat that would definitely have a positive
spk_7: fact on the amount of operating expenses as a percentage in that sense
spk_6: in other income we have three hundred thousand dollars of other income nest versus five hundred thousand other income net in the previous quarter last year
spk_5: we received on a paycheck protection program forgiveness of approximately four hundred and forty thousand dollars was dead compared to the prior year when we had damaged goods receipts and we were starting to receive insurance proceeds on a damaged goods issue that we had from the prize year
spk_6: and as well as forgiveness on accounts payable the from the vendor who caused the issue that was about five hundred twenty two thousand and some those to kind of said each other we did have that this was offset by an increase in interest expense of about seventy thousand dollars as we only have the yard the the recent financing that we had put in place with quest mark and iron horse was in for the first quarter of the
spk_7: fiscal year latter versus issue as minimum a minimum interest requirements that we had to pay accept was about seventy thousand dollar differential so odd
spk_6: looking at everything in total on we had a net loss of approximately one hundred thousand dollars versus two hundred thousand dollars in the prior year so we improve that by about a hundred thousand dollars
spk_5: accounts receivable taking a look at the balance sheet was up five point six million versus or one point eight million in the prior year this time again primarily due to the sales increase of inventory was up eight point four million versus six point nine million about man and a half or higher than than last year at this time
spk_6: in anticipation of the logistical issues and and some of us the news that you've been hearing about global logistics issues around around the world we've ordered our stock try to order as talked a lot earlier this year
spk_7: i couldn't have to get some of that inventory in sooner and
spk_6: we did manage to get a good portion of some this stuff into our stock on before all the real hard nosed logistics issues that about accounts payable is up accordingly six point three million versus two point five million
spk_5: that's pretty much the financial issues are just wanted to talk about the private placement for a bit
spk_6: net is raised approximately nine point eight million dollars in cash the by out and fifty percent owner is approximately seven point two million the cost of the transaction is gonna be approximately eight million dollars and that would give us working capital of approximately one point eight million dollars after everything isn't them so that is my report
spk_7: and i'll turn it back over the gary
spk_2: and what the one quick a correction on and lionel on that
spk_3: leave you to said the cost of the capital raise was about eight million dollars and you meant to say that eight hundred thousand dollars yeah sorry tested threatened hundred thousand dollars
spk_2: i just one the plaza arellano thank you for that presentation at this point i want to turn the call over to bernardo was on the line to give us a bit of an update where we are with retail sales as we move into are important holiday quarters
spk_3: everyone knows for you for joining and took an interest in in a company in on this call on about to go to some of the success and some of these are there were working on now loud one but also for the back and but before so i just i want to bring recognition to on a to the entire team in the company you know the i are easy to mine
spk_8: for not a bill team and also a california thing that
spk_9: it is sad really put us in a position to be successful even do that there's a ton of
spk_3: of issues and challenges out of your his arm
spk_1: domestically would would wait securing containers production challenges on his been an interesting year in at any year like no other that i've that i've been in the company and and it is truly
spk_9: it is a truly has worked out because of all the average that that the entire team has done on i mean it urged shortages of containers and we've been able to secure containers i'm with partnerships be stronger than ever on we have been able to it to secure
spk_3: programs much much earlier this year usually we get commitments it towards march in april
spk_9: and a lot of he tells the have worked with us aren't secure programs earlier on usually we set the floor in september and october we're now setting the floor in as early as july and august which is reflective of some of the sales at at that about happened to one and going into to to
spk_3: i'm in and is it is it's mostly because you know they do recognize some of the charges but also because of the success of carry of the karaoke segment on during the off peak season you know we were still experiencing the post pandemic
spk_9: results arm even though things open up as a do one know people are travelling more and that this that that income
spk_3: doubles apply to to on two other categories of gun allowed to travel but that hasn't snowed karaoke down and mean you know last year we had a i'm a real big uptick weird carpool karaoke when it became popular in an event with to talk and although that seems sort of of thick hasn't happened this year on or other products have to have maintained or increase or sales and me to be look at the data from target for walmart on from cosco dot com walmart dot com everyone is to showing a significant up uptick in sales if you remove that one time jane of carpool karaoke and even if you put it cocoa carpool karaoke were still averaging he the flood sales or or or were out on the so you know it's it's a true testament to the team and i just wanted to make sure i recognize them on on the call bomb we have people that working hard you know all sorts of hours coordinating with with asia to to secure things and we were able to predict work with retailers but also took an opportunity to bring in inventory because as you know this year we has inventories going away and were position right to have to write about of inventory for the most part or to supply or mean customers another thing that we that we started doing in in switching gears on is becoming a lot more efficient and really try to grow those customers that are getting behind the category
spk_9: we the have shown you have a huge success and continue to support ah only the karaoke segment by in a particular with the singing machine so we've we've shipped a lot of stuff out of your it but also domestic sales have been up you know even even if the inventory wasn't coming on time say for walmart or target or amazon
spk_3: we were we caught we caught the bars early enough to make sure that was your inventory
spk_9: and to ship on time so you know for tradition dot com is a good sign of how things are going to be towards the bachelor and and and were showing significant sales they are we've already participated in pointy with amazon
spk_3: which was a success were doing a lot more business now that is now promotional arm we didn't pass some of the price increases in which of force retails to go up and we have not seen a significant decline or decline at all with with some of those some returns that have gone up on
spk_1: the are planning to do another round of price increases year september one arm just to cover some about some of the caused some associated with with the of causing in contain itself
spk_3: be on the lookout for for for the category of we we we we have a of good programs at walmart and target has set or is setting early this year we've already transition some of the older skills and started to transition some of the us que higher price points continue to be ah a big success for us we've also seen i'm really good sell to one on the accessory portion of the business which carrier little bit higher gross profits for us we transition into blue tooth microphones arm which have been traditionally chinese of brands and we started to cut into that market share and would put a never really positioning ourselves to continue to develop products as that dad that focuses on that market ah we also we also have some the programs that are very the going to drive on the top portion of the digital music portion of the business so that's that's good news tom we are going to be too much while this week to continue to see how we expand that for the rest of the year and moving forward and to twenty twenty two so we we have a good plan we have a good structures farm we're we're coming out or deal with some products this year on on on the kids site the size of we're going to be able to
spk_1: to distribute and and test out here in october
spk_10: so that we know how to forecast and we know how to prepare for ah for the upcoming future were releasing carpool karaoke to point out with a good marketing bugs
spk_3: in the game in august our mid august which is already out by the less will be toy september so we're excited about that to introduce what a popular item was for last year but now with new features my new price point going back up to fifty nine that he died am and and already amazon has done a presale armed devoid started shipping died and we've already started in some some positive reviews online so everything is everything's a to well i'm you know we we are extremely excited to watch
spk_2: saturday
spk_3: we we're we're partnering with sam's club to release of so awesome the some some higher price point but also some some good price point for kids
spk_9: and we're just going out to the the home and a team and market not just a karaoke we're we're looking to to really be on top of mind for the whole minutes in the mortar which which will allow us all
spk_1: you don't continue distributed to distribute amongst the retailer two different departments and and were in conversations to do so so on besides that i just feel everything is setting and and i just want to leave more for questioning and the badger on he was as you guys know que one numbers have been really good and and that's
spk_3: really a good sign for us because we're going to be setting the for his earlier in the us and we're going to give myself a better chance to sell to twelve which helps inventory in the fourth quarter says like it up and enjoying the before corners issue so what does your your pets it over to your not just make myself available forum
spk_2: for additional questions in the back
spk_0: efforts iowa we appreciate the a paper we are my full time so i want to make sure that we we address and questions that are out there so why don't we open it up for person to and a at this time if you would like to ask a question please press star and one on your touchstone sound alpha you any time by pressing the pound
spk_11: once again star
spk_12: we'll take our first question from korea from paradise your line something hey guys first and foremost now i want to congratulate you on a tremendous corridor so you know really nice job and and strong execution
spk_13: and thanks to regulate yep and secondly to talk about this earlier revenue recognition and and how you guys view it you know it with regards to relevant implications and is it is it's revenue that you know is recognizing que
spk_5: you it in in this quarter that will be recognized next quarter or do you see this has been any sort of enhancement church to top line and and then like you know and i mentioned margin had center can you just double click the on and on the benefits that that this early revenue recognition and had
spk_6: on the company company's financials yeah sure this is revenues i came in earlier than what it normally would come in so if it's a time just you than anything else but more importantly as far as the financial for concerned this is definitely a good thing for us in terms of one resolving elena a worldwide global logistics problem
spk_14: active we're getting that stuff really is going to help us get like you heard of the same earlier set and ourselves through should be a lot better because the product to be out there longer as we should mitigate some of us take back of stock returns of stock at at the end of year has to be in the torso retail around
spk_15: second of all from a cash flow perspective
spk_9: the other always very tight with cash and in the fourth quarter is i'm sorry i'm in the first one going into the second vs puts a lot of working capital on the table for us because once i get the receivable i'm able to borrow against it it certainly helps the flow situation on our side
spk_1: an enormous amount to do
spk_3: almost all answer from the seals point of view
spk_9: you know what one of the things that happened to shoes there's a lot of pressure to shoot on some of these good good earlier because of how special warmer works on into those
spk_3: organizing the logistics in organizing the the annual event inventory so usually we had been that would be scheduled for the que one on but they are many production challenges this year we were ready we were ready earlier and we were able to me
spk_1: some some of the ago
spk_9: this you know the sixteenth the dead are traditionally set for june the other thing does out the news we are turning over over skewed into news cues so they were able to sell those things to him
spk_12: in may and june so they needed to be ready with the replenishment items on which way but a ship seen that in the end of june timeframe so will you will see maybe i'm consume numbers slightly lower arm but the upside to it is that he will get into stores earlier in there for sales will happen earlier in the mood to then the of the order for the black hills in the spring of next year which will we have already received those commitments from two of the largest retail and so we've already started to see on and and of like december in early january and february we've already started to see wielders because of how is the cell to was going now and the and in the beginning all of us to school you so the is it fair to say that will you know just in in the nature of your business and obviously this is a more a seasonal business but what you're able to do is kind of diverse by that revenue stream and say you know unique quarters you know
spk_16: eminem pants that manner
spk_9: and you're seeing the benefits and second the you know as as you see those benefits have you do you think about going forward how you can continue to canada
spk_3: spread out that revenue so to speak side by recognizing those orders earlier
spk_1: yeah when ford
spk_2: your is is in again it's it's it's it's a tough issue on you know who's to separate out of to be too you know selling into the to the retailers in the cellar now i'm in the by by by continuing to to move things are during the year on were just really giving ourselves
spk_9: on that sell out opportunities in in this in the late spring summer time on which traditionally where he was the time we were shipping item from the only but now since we shipping earlier to setting earlier and were seen some of those sales that way
spk_12: he had not seen before on in the spring summer time so this is now you to the experiments for sam's club this is your to for the experiment for to walmart and and some of the third you accomplish in some of the conversation that we're having now that already targeting twenty twenty two were seen those do that that that trend and those conversations continue so we're excited about that yeah we're excited about that in in india we were hoping that that this continues for used to come
spk_3: that's great and then say one more question which is your obviously the entire world's bags variance the last eighteen months this global pandemic at many a majority businesses suffered from it for others it created opportunity and you guys touched on that
spk_9: the opportunity than that cause for you and how do you as you take that opportunity or how do you think that that that opportunity a coat that covert created where you know if the bank lot more awareness to the business and and and gonna in old activities i am and and your karaoke offering and how do you make that temporary tell and and like a permanent capitalization going for yeah that's that's that's a good question and and and first and foremost wear dresses out with product development on we are we are focusing on on to spectrums of the business that really continue to capitalize on that momentum and we've been we've we've already started the challenge bomb with a with retailers so we're focusing on on and number one on the kids market you know that the dupree eight year old market bomb we've touched on it before and we've we distributed before but we have a couple of product offerings
spk_17: that we're working on right now that a really going to continue on to capitalize on on on that market on the dad is that also starts cutting into that licensing on opportunity that that we will move been up against so by by recognizing that and by same by now
spk_8: launching a couple of products items in that segment on we believe that we could continue to position ourselves as as a go to ah is a go to company for home and a team in need and prepaid pre eight years old and they will was doing is also sought to the sorting and continue to develop integrated products way
spk_9: with with the digital arm with our digital pointed is interesting me so that we could enhance the family experience arm and better integrate the hardware and software on so now that people have maybe one of our one of our current machines and doing join
spk_3: you know the karaoke
spk_12: well as a team in at home the now we start releasing some a little bit higher ed another more fun to driven
spk_18: a product that will also take care of of
spk_12: of that home and family been yeah that that's great senior says you know again you can say great we achieved the one time you know covert tell and revenue bonds or it and say hey we just captured a new audience you know what does the innovation and high touch approach we can do to continue to capitalize on that as a growth factor gone for that doesn't he has or think
spk_3: about a year
spk_0: the right way so again that's not a great quarter
spk_2: and impressive business and really excited of milestones that you guys were achieve in the upcoming course
spk_19: thank you grab recent excellent that
spk_2: we'll take our ask questions from eric dickerson from third century
spk_3: the like nothing
spk_20: eg more and our just a christian for for bernardo first and reading is pretty much across the board day in the toy industry they're looking at fractionally twenty to twenty five percent deck price increases
spk_1: oh yeah
spk_9: are you figure in to be back in line with that uses price increases it'll be necessary this year over the supply chain issues yeah that that some
spk_3: you know that does it does killer bees or or or or or biggest challenge of you know unfortunately we said programs very very early on me you know for twenty twenty one was already probably send programs and twenty thousand before the storm crisis hit and and we've been having those conversations with
spk_21: with the retailers bomb very intense conversations are to try to cover those things so you not out and over going to be able to recoup you know a hundred percent of of or of of the caused by a we have partner with some of the retailers on to to take those price increases and and then we will
spk_9: read retails ah i'm to be in line with that so you know what twenty five to send you know probably a little bit high on for our business because women one of the electronic side but on by the age is probably our or or or biggest challenge for
spk_3: patrick
spk_21: or how am i want to look at this is restructuring deal and
spk_9: drill down to where the devil resides little bit
spk_3: first amla and the sell side always with selling off and with by understand it right to something like ultimately thirty three million shares as sixty and a half million right away the other thirty three million or little sixteen million when they the warrants exercise five years down the road and what's this what's surprising on that unit
spk_21: i guess it's a share of stock and and a warrant
spk_3: that's that's correct so we saw the unit as dean a one unit of common stock in one unit of a palm and one i'm at at thirty cents right and understand them that the clock doesn't even start on these five year warrants until after you've registered all three or thirty three million shares
spk_2: ah yeah that leaves i believe you're correct yes k
spk_3: dima can on the by side he we have a solid deal now with the cellar and as to the pricing and as to whether the deals kind of for certain gonna happen
spk_21: oh wait we just announced this morning that we have
spk_3: we have closed on the by back of the majority on his shares to we will be buying back nineteen point six million shares from the previous majority owner i've noticed though however that the are stock transfer asian hasn't that seems like on there and they haven't closed it because when i look at the number shares outstanding like on yahoo finance or ltc markets i'm still seeing about fifty five million shares outstanding which is not reflective of the actual buyback so once that back
spk_22: finalizes through the transfer agent we should start seeing the number of shares outstanding drop five you know approximately twenty million some from the city time well my understanding from brennan was at those shares with conditional they come in there in the treasury
spk_3: become treasury stock and then shortly after that you planning on retiring on the so they're not going to be outstanding at the time the they'll no longer be outstanding at the time to bring a man i the so they should they should disappear from the count they should they should or yes yes
spk_2: the okay and what's so what he hasn't what are you having to pay for that stock so for that stock we we have to pay approximately seven point one seven point two million dollars which works out to roughly thirty six point five cents a share
spk_23: yeah
spk_3: that's that's a pretty big pretty big spread it's unfortunate that you guys couldn't
spk_2: design this thing says that it will happen that so that both sides would be that could be contingent on the other side closing
spk_3: and i can and i didn't
spk_9: i can i can elaborate a little bit on that too i mean i'm imagine that's probably a question that's on the mind of a lot of shareholders or and it's quite common i mean it's it's very common in the microcap world of particularly and companies weather is majority owner that that controlling block that fifty percent
spk_21: the majority ownership does carry a premium so there is a premium to control of the company and so we've had a outside valuation now says done
spk_9: we've had enough
spk_24: engage with accounting firms and valuation firms and they've looked at this transaction from a number different ways and the conclusion was this is very much in line with what is common practice particularly in the sort of microcap world where there is a controlling own so it it's the premium that said the company paid to buy back control is is very much in line with what is sort of standard practice in the industry and cross now multiple different
spk_25: he is not working i clutched i am an unfamiliar with that you gotta you gotta pay up a little bit if you wanna
spk_24: travelers something beyond buying and stock
spk_9: an accident i guess i'm more concerned about the sell side and that's that's a super deal
spk_21: my point out that and not just as i represented institution
spk_3: and we have to have was five percent of the company already been around for a long time and now nobody and nobody offered me to steal
spk_2: how to check that out a jump out with those feet italy i protocol have and million dollars the table to buy here
spk_3: that unit need thirty cents so that could games whereas be sweet deal there
spk_24: and i think i know this shorting the stock by the way and and it's is those cases are getting these shares that they're going to cover with the shares again be left with that with the warrants for free
spk_9: well i can't i think like don't get me roger gary i'm an overall i'm actually really think you did there i mean i find it i think erica the way we look at this is this is some you can look at it from a short term perspective but where where it were generally long winded on this and i think the the the short term price that we paid to buy back control and to bring in the
spk_2: very well known reputable us space funds to help us fuel growth in the future
spk_0: he is i enough for the long term i just don't think you can put a price on that i think the company over the course of the coming years will have a lot more doors open to us and a lot more access to capital than we've ever had and fast and i and i just really think that you know there's there's obviously a cost everything and so we weigh the pros and cons and we felt like long term for all of the shareholders
spk_26: tom that this was the price worth paying to unlock a lot of this potential growth in the future
spk_27: yeah okay like i said i'm i'm with ya necessary
spk_2: a few the like so few the little details their rank all of it
spk_3: but i think it did the right thing and i'm glad it happened i think say you're making the right assessment of and what the future looks like and under thanks very much good course okay thank you once again if you like to ask a question please press star and one on your touch tone if you overhead take our next question from mike showing from my girl cat airline a often
spk_28: yes i was wondering what the financing how does that change your relationship with sting ray arm and doesn't naval home you know anything and new to be done
spk_29: yes thanks to that makes it so is this certainly enhances their relationship with them my right a me before before this private placement they were just a a partner of hours now they are a strategic investors were gonna be welcome that welcoming them onto our board of directors so they obviously have a lie
spk_0: lot of keen interest in being very active in our company and i think if you
spk_30: for sting ray i mean they're they're obviously a much larger company than we are there about a half a billion dollar market cap publicly traded company so for them to take the interest in making the strategic investment in us i think it speaks to what they see as potential and
spk_21: my belief is that there are a lot more opportunities that sting rains and mission can pursue together in terms of building out our our hardware software integration
spk_31: and turning more of our karaoke machine and last year we put in a one point six million see machine devices and out into the market in some people's hands and only a very very very small percentage is as machine went out there are have the capability of of recurring revenue and so that's
spk_32: that's the opportunity right you get close to two million devices in the people's homes and you start converting more and more those devices into things that can get onto the internet and and
spk_33: and convert into paying subscribers
spk_3: that's that's transformers you know that's that's huge and that's that's what i wasting my seize the opportunity that's where we see the future the business so we're all a line on the same vision and that's that's where we want to start transforming into as a company
spk_34: okay thank you
spk_2: i think
spk_3: take our next question again eric dickerson your life
spk_35: yeah i just heard about stingray what care
spk_36: how much how much says doctor today but
spk_0: i don't know some at liberty to disclose am i know that
spk_3: at some point will be building up a beneficial ownership table
spk_2: i'd sooner
spk_3: i'm not sure i'll have to check with your network and maybe get back to you i saw i don't know if surely they'll go get my percent older they'll have to have to disclose anyway
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