Singing Machine Announces Record Earnings in Fiscal 2016 Annual Report

FORT LAUDERDALE, FL--(Marketwired - Jun 29, 2016) - The Singing Machine Company, Inc. ("Singing Machine" or the "Company") (OTCQB: SMDM) -- the North American leader in consumer karaoke products -- today announced record-breaking financial results for its fiscal year ended March 31, 2016.

Fiscal Year End Highlights:

• Earnings per share of $0.04 for the March 31, 2016 fiscal year end.
  
  
• Net sales for the fiscal year increased by 24% to $48.9 million.
  
  
• Gross profit margins increased by 3.3% to 24.4%.
  
  
• Gross profits increased by $3.6 million to $11.9 million.
  
  
• Product returns reduced to historical low of 5.5% of gross sales.
  
  
• Inventory decreased by 50% to $3.7 million.
  
  
• Net income for the fiscal year end increased to $1.7 million.
  

Singing Machine reports net sales of approximately $48.9 million for the March 31, 2016 fiscal year end period, an increase of 24% from the prior year ($39.3 million). The increase in net sales is attributable to an increase in sales to the Company's major retailers caused by successful marketing campaigns and increased consumer demand. The increase is also attributable to an expansion in international sales to the United Kingdom and other new territories. E-commerce sales through the Company's online platforms continue to grow, accounting for 18% of the increase.

Gross profit increased by $3.6 million to $11.9 million, or 24.4% of net sales compared to $8.3 million or 21.1% of net sales reported in the prior year. The increase in gross profit margin is primarily attributable to the Company successfully negotiating price reductions on select high volume products and the Company's ability to command a higher margin on its digital download line of products.

Total operating expenses for FYE March 2016 were $10.0 million compared to $7.7 million in the prior year. The increase is primarily attributable to the rise in selling expenses due to the 24% increase in overall net sales.

As a result, the Company reported income from operations of $1.9 million for the fiscal year ended March 31, 2016, compared to $0.6 million reported in the prior year. The Company reversed its remaining deferred tax asset valuation allowance of approximately $0.8 million based upon the Company's history of profitability and Management's assessment of the current business climate and expected future profits. As a result, the Company recognized a net income tax benefit of $0.1 million. Consequently, net income for the year was $1.7 million, compared to $0.2 million for the 2015 fiscal year end and earnings per share for the fiscal year end was $0.04 cents.

Management Commentary:

Gary Atkinson, Singing Machine CEO commented, "Fiscal 2016 was a banner year for Singing Machine. The Company has now recorded profits in five consecutive years and demonstrated continued growth. We drove improvements in all financial areas including sales growth, margin improvement, inventory reduction, and significant improvement in bottom line earnings. In addition, we realized a historically low rate of product returns (5.5% of gross sales compared to historical average of 8.0% of gross sales), signaling that our customers are thrilled with the new digital line of products."

Atkinson added, "In Fiscal 2016 we generated heavy promotion and distribution on our Classic line of karaoke products which was carried by almost every single major big box retailer. We also successfully launched a new digital download line of products that generated an average revenue stream of over $27 per paying user, not including recurring mobile App revenue that has increased 75% from the prior year. In addition, we have confirmed a backlog of orders on our digital download products for this coming year that represents a 400% increase on last year's numbers."

"As we move into Fiscal 2017, we enter the fiscal year with the best retailers carrying Singing Machine products year-round, increasing international demand and establishing a strong cash position, a significantly improved balance sheet, and a product development strategy that will focus on driving more music sales to our various music revenue platforms."

Earnings Call Information:

The Company will host a conference call tomorrow, Thursday, June 30, 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 800-894-5910 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 12,000 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, 2016. 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
CONSOLIDATED BALANCE SHEETS
					March 31, 2016			March 31, 2015
Assets
Current Assets
	Cash			$	2,116,490			$	116,286
	Accounts receivable, net of allowances of $51,179 and $174,131, respectively				1,381,789				1,466,168
	Due from PNC Bank				184,392				137,415
	Accounts receivable related party - Starlight Consumer Electronics USA, Inc.				2,820				-
	Accounts receivable related party - Starlight R&D, Ltd.				4,255				-
	Accounts receivable related party - Cosmo Communications Canada, Ltd				19,077				-
	Inventories, net				3,690,975				7,448,167
	Prepaid expenses and other current assets				115,601				92,609
	Deferred financing costs				74,077				74,077
		Total Current Assets			7,589,476				9,334,722
Property and equipment, net					430,602				466,571
Other non-current assets					11,394				11,394
Deferred financing costs, net of current portion					21,606				95,683
Deferred tax asset					2,408,531				2,305,555
		Total Assets		$	10,461,609			$	12,213,925
Liabilities and Shareholders' Equity
Current Liabilities
	Accounts payable			$	722,213			$	2,767,180
	Note payable related party - Ram Light Management, Ltd.				696,612				496,496
	Due to related party - Ram Light Management, Ltd				400,000				583,247
	Due to related party - Starlight R&D, Ltd.				-				554,031
	Due to related party - Cosmo Communications Canada, Inc.				-				40,256
	Due to related party - Starlight Consumer Electronics Co., Ltd.				-				208,672
	Accrued expenses				650,115				452,651
	Current portion of capital lease				1,078				12,628
	Obligations to customers for returns and allowances				121,092				399,419
	Warranty provisions				292,500				197,873
		Total Current Liabilities			2,883,610				5,712,453
Long-term capital lease, net of current portion					-				1,078
Note payable related party debt - Ram Light Management, Ltd. net of current portion					-				603,504
Accrued expenses, net of current portion					-				46,495
Subordinated related party debt - Starlight Marketing Development, Ltd.					1,924,431				1,924,431
		Total Liabilities			4,808,041				8,287,961
Commitments and Contengencies
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; 38,181,635 and 38,117,517 shares issued and outstanding, respectively				381,816				381,175
	Additional paid-in capital				19,337,939				19,307,966
	Subscriptions receivable				(6,400	)
	Accumulated deficit				(14,059,787	)			(15,763,177	)
		Total Shareholders' Equity			5,653,568				3,925,964
		Total Liabilities and Shareholders' Equity		$	10,461,609			$	12,213,925

See notes to the consolidated financial statements.

The Singing Machine Company, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
			For the Years Ended
			March 31, 2016				March 31, 2015				March 31, 2014
Net Sales			$	48,856,544			$	39,308,281			$	31,379,629
Cost of Goods Sold				36,937,654				30,997,211				24,273,038
Gross Profit				11,918,890				8,311,070				7,106,591
Operating Expenses
	Selling expenses			4,656,003				3,104,598				2,402,153
	General and administrative expenses			5,153,950				4,507,606				4,257,335
	Depreciation			171,785				130,254				168,138
Total Operating Expenses				9,981,738				7,742,458				6,827,626
Income from Operations				1,937,152				568,612				278,965
Other Expenses
	Interest expense			(261,061	)			(253,282	)			(53,446	)
	Financing costs			(74,077	)			(52,471	)			-
Net Other Expenses				(335,138	)			(305,753	)			(53,446	)
Income before income tax (provision) benefit				1,602,014				262,859				225,519
Income tax benefit (provision)				101,376				(92,701	)			778,797
Net Income			$	1,703,390			$	170,158			$	1,004,316
Income per Common Share
	Basic		$	0.04			$	0.00			$	0.03
	Diluted		$	0.04			$	0.00			$	0.03
Weighted Average Common and Common
Equivalent Shares:
	Basic			38,146,391				38,097,226				38,057,628
	Diluted			38,597,862				38,602,577				38,647,290

See Notes to the consolidated financial statements.

The Singing Machine Company, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
					For the Years Ended
					March 31, 2016				March 31, 2015				March 31, 2014
Cash flows from operating activities:
	Net Income				$	1,703,390			$	170,158			$	1,004,316
	Adjustments to reconcile net income to net cash (used in) provided by operating activities:
		Depreciation				171,785				130,254				168,138
		Amortization of deferred financing costs				74,077				52,471				-
		Change in inventory reserve				339,000				(217,000	)			135,000
		Change in allowance for bad debts				(122,952	)			1,666				(7,841	)
		Loss from disposal of property and equipment				-				-				4,479
		Stock-based compensation				24,214				46,308				107,351
		Change in net deferred tax assets				(102,976	)			92,701				(778,797	)
	Changes in operating assets and liabilities:
		(Increase) decrease in:
		Accounts receivable				207,331				(512,283	)			152,765
		Due from Crestmark Bank				-				19,638				(19,638	)
		Due from PNC Bank				(46,977	)			(137,415	)			-
		Accounts receivable related parties				(26,152	)
		Inventories				3,418,192				(1,403,554	)			(1,839,206	)
		Prepaid expenses and other current assets				(22,992	)			(1,521	)			(6,647	)
		Other non-current assets				-				6,236				142,326
		Increase (decrease) in:
		Accounts payable				(2,044,967	)			849,104				782,951
		Due to related parties				(986,206	)			(147,825	)			345,679
		Accrued expenses				150,969				52,832				(239,698	)
		Warranty provisions				94,627				(37,299	)			19,701
		Obligations to customers for returns and allowances				(278,327	)			(70,419	)			93,549
			Net cash provided by (used in) operating activities			2,552,036				(1,105,948	)			64,428
Cash flows from investing activities:
	Purchase of property and equipment					(135,816	)			(35,600	)			(214,677	)
	Refund (deposit) of restricted cash					-				138,042				(138,042	)
			Net cash (used in) provided by investing activities			(135,816	)			102,442				(352,719	)
Cash flows from financing activities:
	Payment on note payable related party - Ram Light Management, Ltd.					(403,388	)			-				-
	Payment of deferred financing costs					-				(222,231	)			-
	Payments on long-term capital lease					(12,628	)			(12,076	)			(10,606	)
			Net cash used in financing activities			(416,016	)			(234,307	)			(10,606	)
Net change in cash						2,000,204				(1,237,813	)			(298,897	)
Cash at beginning of year						116,286				1,354,099				1,652,996
Cash at end of year					$	2,116,490			$	116,286			$	1,354,099
Supplemental Disclosures of Cash Flow Information:
	Cash paid for interest				$	270,193			$	180,371			$	53,446
	Cash paid for income taxes				$	-			$	-			$	13,348
Supplemental Disclosures of Non-cash Investing and Financing Activities:
	Conversion of related party payables to note payable				$	-				1,100,000			$	-
	Property and equipment purchased under capital lease				$	-			$	36,388			$	-

See notes to the consolidated financial statements.