SOURCE: The Singing Machine Company, Inc.

The Singing Machine Company, Inc.

June 29, 2016 16:33 ET

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.
 

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