SOURCE: The Singing Machine Company, Inc.

The Singing Machine Company, Inc.

November 14, 2016 07:00 ET

Singing Machine Announces Record Sales & Earnings in Second Quarter Earnings Report

FORT LAUDERDALE, FL--(Marketwired - Nov 14, 2016) - The Singing Machine Company, Inc. ("Singing Machine" or the "Company") (OTCQX: SMDM) -- the North American leader in consumer karaoke products -- today announced its financial results for its second quarter ended September 30, 2016.

Second Quarter Highlights:

  • Earnings per share increased 66% to $0.05 per share compared to $0.03 in the same period last year. Year-to-date earnings per share increased to $0.04 cents per share.
  • Net sales for the quarter increased 33% to $28.1 million.
  • Net sales year-to-date increased by 34% to $32.9 million.
  • Net income before tax for the quarter increased to $2.8 million, compared to approximately $1.9 million in the same period last year.
  • Year-to-date net income before tax increased to approximately $2.0 million compared to approximately $0.9 million in the same period last year.

Singing Machine reports net sales of approximately $28.1 million for the quarter-ended September 30, 2016 period, an increase of 33% from the prior year ($21.1 million). The increase in net sales is primarily due to an increase in sales to one major retailer for a Black Friday holiday program. The balance of the growth came from an increase in sales to a popular e-commerce retailer who anticipates strong demand for Singing Machine product for the holidays as well as timing factors with other retailers buying product early for the season.

Gross profit increased by approximately $1.6 million to $6.5 million, or 23.1% of net sales, compared to approximately $4.9 million, or 23.3% of net sales, reported in the prior year. The mix of gross profit margin is slightly lower than regular margin due to a large portion of the sales going to one retailer for its Black Friday promotion. 

Total operating expenses increased to $3.7 million compared to $3.0 million in the prior year. The majority of the increase is a result of increased variable selling expenses associated with the increase in overall net sales. The balance of the increase was a result of additional payroll expense and overseas expenses to handle the increase in production.

As a result, the Company reported income from operations of $2.8 million compared to income from operations of approximately $1.9 million in the same period in the prior year (47% increase). Net income for the quarter increased to $1.8 million (or $.05 cents per share on a fully diluted basis) compared to $1.1 million (or $0.03 cents per share on a fully diluted basis) over the same period last year. Net income through the first six months was $1.4 million compared to approximately $0.6 million over the same period last year.

Management Commentary:

Gary Atkinson, Singing Machine CEO, commented, "Our team has done a fantastic job growing the business this quarter. We grew net sales by 33% over last year and we were also successful in significantly improving our bottom line net income by 138% year-to-date. The revenue increase reflects organic growth of our karaoke hardware to new and existing customers as well as international markets. I'm proud to say this quarter marks the tenth consecutive quarter of year-over-year growth in sales and earnings."

Bernardo Melo, Vice President of Sales, commented, "The great results reported during this quarter are the result of our expanded partnership with our Retailers and eTailers as well as a continued commitment to position our brand as a leader in home entertainment. We are properly aligned to take advantage of the increase in home entertainment purchases by families across the world. We released two additional Digital Download karaoke machines this year -- the Remix and the Fiesta, expanding our assortment to meet the need of consumer demands for new technology in the digital download segment. The increase in sales also reflects the early sell through trends this year, which our retail partners anticipate will continue during our key holiday rush. We are also seeing strong demand abroad, where we anticipate 100% increase year over year growth internationally."

Earnings Call Information:

The Company will host a conference call today, Monday, 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 (800) 895-1241 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  
CONDENSED CONSOLIDATED BALANCE SHEETS  
   
    September 30, 2016     March 31, 2016  
    (Unaudited)        
Assets  
Current Assets                
  Cash   $ 948,506     $ 2,116,490  
  Accounts receivable, net of allowances of $283,689 and $51,179, respectively     18,141,061       1,381,789  
  Due from PNC Bank     -       184,392  
  Accounts receivable related party - Cosmo Communications Canada, Ltd     375,874       19,077  
  Accounts receivable related party - Winglight Pacific, Ltd     257,908       -  
  Accounts receivable related party - other     2,974       7,075  
  Inventories, net     8,626,644       3,690,975  
  Prepaid expenses and other current assets     77,360       115,601  
  Deferred financing costs     58,644       74,077  
    Total Current Assets     28,488,971       7,589,476  
                 
Property and equipment, net     419,440       430,602  
Other non-current assets     11,523       11,394  
Deferred financing costs, net of current portion     -       21,606  
Deferred tax asset     1,738,670       2,408,531  
    Total Assets   $ 30,658,604     $ 10,461,609  
                 
Liabilities and Shareholders' Equity  
Current Liabilities                
  Accounts payable   $ 10,143,703     $ 722,213  
  Note payable related party - Ram Light Management, Ltd.     467,449       696,612  
  Due to related party - Ram Light Management, Ltd     -       400,000  
  Due to related party - Starlight Electronics Co., Ltd     87,066       -  
  Due to related party - Starlight Consumer Electronics Co., Ltd.     15,598       -  
  Accrued expenses     1,966,217       650,115  
  Revolving line of credit     8,103,991       -  
  Current portion of capital lease     -       1,078  
  Obligations to customers for returns and allowances     19,893       121,092  
  Warranty provisions     859,872       292,500  
  Subordinated related party debt - Starlight Marketing Development, Ltd.     1,924,431       -  
    Total Current Liabilities     23,588,220       2,883,610  
                 
Subordinated related party debt - Starlight Marketing Development, Ltd.     -       1,924,431  
    Total Liabilities     23,588,220       4,808,041  
                 
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; 38,223,303 and 38,161,635 shares issued and outstanding, respectively     382,233       381,816  
  Additional paid-in capital     19,374,536       19,337,939  
  Subscriptions receivable     -       (6,400 )
  Accumulated deficit     (12,686,385 )     (14,059,787 )
    Total Shareholders' Equity     7,070,384       5,653,568  
    Total Liabilities and Shareholders' Equity   $ 30,658,604     $ 10,461,609  
   
See notes to the condensed consolidated financial statements.  
   
   
The Singing Machine Company, Inc. and Subsidiaries  
CONDENSED CONSOLIDATED INCOME STATEMENTS  
(Unaudited)  
                 
                 
  For Three Months Ended   For Six Months Ended  
  September 30, 2016   September 30, 2015   September 30, 2016   September 30, 2015  
                         
                         
Net Sales $ 28,129,051   $ 21,060,584   $ 32,988,443   $ 24,527,458  
                         
Cost of Goods Sold   21,626,419     16,109,943     25,342,128     18,718,396  
                         
Gross Profit   6,502,632     4,950,641     7,646,315     5,809,062  
                         
Operating Expenses                        
  Selling expenses   2,227,223     1,831,235     2,652,101     2,288,962  
  General and administrative expenses   1,467,131     1,202,256     2,713,982     2,304,237  
  Depreciation   43,795     37,332     87,590     74,665  
Total Operating Expenses   3,738,149     3,070,823     5,453,673     4,667,864  
                         
Net Income from Operations   2,764,483     1,879,818     2,192,642     1,141,198  
                         
Other Expenses                        
  Interest expense   (67,038 )   (102,806 )   (83,065 )   (152,918 )
  Financing costs   (18,520 )   (18,520 )   (37,039 )   (37,039 )
Total Other Expenses   (85,558 )   (121,326 )   (120,104 )   (189,957 )
                         
Income Before Income Tax Provision   2,678,925     1,758,492     2,072,538     951,241  
                         
Income Tax Provision   (868,449 )   (687,019 )   (699,135 )   (374,694 )
                         
Net Income $ 1,810,476   $ 1,071,473   $ 1,373,403   $ 576,547  
                         
Income per Common Share                        
  Basic $ 0.05   $ 0.03   $ 0.04   $ 0.00  
  Diluted $ 0.05   $ 0.03   $ 0.04   $ 0.00  
                         
Weighted Average Common and Common Equivalent Shares:                        
  Basic   38,205,186     38,117,517     38,193,247     38,077,116  
  Diluted   38,980,571     38,070,642     38,968,632     38,077,116  
                         
See notes to the condensed consolidated financial statements.  
   
   
The Singing Machine Company, Inc. and Subsidiaries  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited)  
    For Three Months Ended  
    September 30, 2016     September 30, 2015  
                 
                 
Cash flows from operating activities:                
  Net Income   $ 1,373,403     $ 576,547  
  Adjustments to reconcile net income to net cash used in operating activities:                
    Depreciation     87,590       74,665  
    Amortization of deferred financing costs     37,039       37,039  
    Change in inventory reserve     90,000       112,440  
    Change in allowance for bad debts     232,510       (48,741 )
    Stock based compensation     37,014       12,193  
    Change in net deferred tax asset     669,861       374,694  
  Changes in operating assets and liabilities:                
    (Increase) decrease in:                
    Accounts receivable     (16,991,782 )     (15,457,793 )
    Due from PNC Bank     184,392       -  
    Accounts receivable related parties     (610,604 )     (1,591,257 )
    Inventories     (5,025,669 )     (2,213,520 )
    Prepaid expenses and other current assets     38,241       (95,715 )
    Other non-current assets     (129 )     -  
    Increase (decrease) in:                
    Accounts payable     9,421,490       6,495,546  
    Due to related parties     (297,336 )     2,336,171  
    Accrued expenses     1,316,102       1,179,864  
    Customer deposits     -       91,157  
    Obligations to clients for returns and allowances     (101,199 )     (394,009 )
    Warranty provisions     567,372       429,658  
      Net cash used in operating activities     (8,971,705 )     (8,081,061 )
Cash flows from investing activities:                
  Purchase of property and equipment     (76,428 )     (129,517 )
      Net cash used in investing activities     (76,428 )     (129,517 )
Cash flows from financing activities:                
  Net proceeds from revolving line of credit     8,103,990       8,678,304  
  Net proceeds from exercise of stock options     6,400       -  
  Payment on note payable related party - Ram Light Management, Ltd.     (229,163 )     (132,456 )
  Payment of deferred financing costs     -       -  
  Payments on long-term capital lease     (1,078 )     (6,244 )
  Net loan proceeds from related parties     -       -  
      Net cash provided by financing activities     7,880,149       8,539,604  
Net change in cash     (1,167,984 )     329,026  
                 
Cash at beginning of period     2,116,490       116,286  
Cash at end of period   $ 948,506     $ 445,312  
                 
Supplemental disclosures of cash flow information:                
  Cash paid for interest   $ 53,107     $ 58,808  
                 
See notes to the condensed consolidated financial statements.  

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