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.