FORT LAUDERDALE, FL–(Marketwired – Jun 29, 2017) – 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 full fiscal year ended March 31, 2017.
Full Fiscal 2017 Highlights:
- $0.04 earnings per share; EBITDA earnings per share of $0.07 on a fully diluted basis.
- Net sales for the fiscal year increased by 8% to $52.9 million.
- Gross margin for the year improved by 1.7% to 26.1%.
- Net income before tax for the fiscal year increased by $1.1 million (or 70%) to $2.7 million.
- Net income for the fiscal year of $1.7 million.
- Paid down approximately $1.1 million in related party debt.
- 80% YoY increase in digital music sales.
Singing Machine reports net sales of approximately $52.9 million for the March 31, 2017 fiscal year-end period, compared to approximately $48.9 million in the prior year. The increase in net sales is primarily due to an increase in sales to three of the Company’s top retailers and an increase in on-line shopping. Some of the increase was also attributable to increased demand for product internationally.
Gross profit margin increased by 1.7% from 24.4% to 26.1%. As a result, gross profit increased to $13.8 million compared to $11.9 million in the prior year. The increase in gross margin was due to increased profit margins on the digital download product line compared to the margin on the Classic karaoke line.
Total operating expenses increased from $10.0 million in the prior year to approximately $10.9 million for Fiscal 2017. The increase was partially attributable to variable selling expense commensurate with the increase in net sales and partially caused by an increase in general & administrative expenses.
As a result of the above, net income before tax increased by 70% to $2.7 million (or $0.07 cents per share) compared to $1.6 million ($0.04 cents per share) in the prior year. The Company recognized an income tax provision of $1.0 million based on an effective tax rate of 34.1%. The Company still retains approximately $1.5 million in deferred tax assets going forward. Net income for the fiscal year remained at $1.7 million compared to the prior year, which is primarily due to the $1.0 million income tax provision recognized this year as compared to a $0.1 million tax benefit recognized last year due to a reversal of a deferred tax asset valuation reserve of $0.7 million.
Management Commentary:
Gary Atkinson, Singing Machine CEO commented, “Fiscal 2017 marks six consecutive years of increased profits and growth. We’re excited with the results, particularly, we saw an 8% growth in overall net sales yet we drove a 70% increase to our pre-tax net income, resulting in $0.07 cents per share in pre-tax earnings. This was the result of increasing overall margin while holding our expenses relatively flat.” Atkinson added, “As we move into our new fiscal year, we remain heavily optimistic about our ability to continue to grow hardware sales both domestically and abroad, while continuing to expand our recurring revenue stream with music sales and subscriptions.”
Bernardo Melo, Vice President of Sales, commented, “We are feeling the positive effects of the strong demand for karaoke and the Singing Machine brand that is opening up doors to new retail partners domestically and internationally. We just signed up a new major retailer in the U.S. for karaoke and our new toy line of products are gaining traction with new and existing customers. We’re excited to start shipping our toy products now for the fall.”
Melo added, “Additionally, as e-commerce grows, we are well positioned to grow with it. Last year, our e-commerce sales grow over 40% year-over-year with e-commerce now accounting for over 20% of Company sales. As we move into Fiscal 2018, we enter the year with strong momentum, increasing demand and order commitments, and a roadmap of upcoming product innovations and new product releases to announce.”
Earnings Call Information:
The Company will host a conference call today, Thursday, June 29, 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 866-342-8591 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 13,000 songs for streaming and download. Singing Machine products are sold through most major retailers in North America and 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, 2017. 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, 2017 | March 31, 2016 | ||||||||||
| Assets | |||||||||||
| Current Assets | |||||||||||
| Cash | $ | 2,305,439 | $ | 2,116,490 | |||||||
| Accounts receivable, net of allowances of $132,583 and $51,179, respectively | 1,655,518 | 1,381,789 | |||||||||
| Due from PNC Bank | 242,859 | 184,392 | |||||||||
| 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 | 5,426,346 | 3,690,975 | |||||||||
| Prepaid expenses and other current assets | 81,278 | 115,601 | |||||||||
| Deferred financing costs | 21,606 | 74,077 | |||||||||
| Total Current Assets | 9,733,046 | 7,589,476 | |||||||||
| Property and equipment, net | 412,805 | 430,602 | |||||||||
| Other non-current assets | 11,523 | 11,394 | |||||||||
| Deferred financing costs, net of current portion | – | 21,606 | |||||||||
| Deferred tax asset | 1,479,209 | 2,408,531 | |||||||||
| Total Assets | $ | 11,636,583 | $ | 10,461,609 | |||||||
| Liabilities and Shareholders’ Equity | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | 1,381,870 | $ | 722,213 | |||||||
| Note payable related party – Ram Light Management, Ltd. | – | 696,612 | |||||||||
| Due to related party – Ram Light Management, Ltd | – | 400,000 | |||||||||
| Accrued expenses | 626,331 | 650,115 | |||||||||
| Current portion of capital lease | – | 1,078 | |||||||||
| Obligations to customers for returns and allowances | 38,460 | 121,092 | |||||||||
| Warranty provisions | 223,700 | 292,500 | |||||||||
| Subordinated related party debt – Starlight Marketing Development, Ltd. | 1,924,431 | – | |||||||||
| Total Current Liabilities | 4,194,792 | 2,883,610 | |||||||||
| Subordinated related party debt – Starlight Marketing Development, Ltd. | – | 1,924,431 | |||||||||
| Total Liabilities | 4,194,792 | 4,808,041 | |||||||||
| 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; 38,279,303 and 38,181,635 shares issued and outstanding, respectively | 382,593 | 381,816 | |||||||||
| Additional paid-in capital | 19,412,787 | 19,337,939 | |||||||||
| Subscriptions receivable | – | (6,400.00 | ) | ||||||||
| Accumulated deficit | (12,353,589 | ) | (14,059,787 | ) | |||||||
| Total Shareholders’ Equity | 7,441,791 | 5,653,568 | |||||||||
| Total Liabilities and Shareholders’ Equity | $ | 11,636,583 | $ | 10,461,609 | |||||||
| 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, 2017 | March 31, 2016 | March 31, 2015 | |||||||||||
| Net Sales | $ | 52,919,228 | $ | 48,856,544 | $ | 39,308,281 | |||||||
| Cost of Goods Sold | 39,082,802 | 36,937,654 | 30,997,211 | ||||||||||
| Gross Profit | 13,836,426 | 11,918,890 | 8,311,070 | ||||||||||
| Operating Expenses | |||||||||||||
| Selling expenses | 5,035,787 | 4,656,003 | 3,104,598 | ||||||||||
| General and administrative expenses | 5,648,036 | 5,153,950 | 4,507,606 | ||||||||||
| Depreciation | 166,025 | 171,785 | 130,254 | ||||||||||
| Total Operating Expenses | 10,849,848 | 9,981,738 | 7,742,458 | ||||||||||
| Income from Operations | 2,986,578 | 1,937,152 | 568,612 | ||||||||||
| Other Expenses | |||||||||||||
| Interest expense | (189,230 | ) | (261,061 | ) | (253,282 | ) | |||||||
| Financing costs | (74,077 | ) | (74,077 | ) | (52,471 | ) | |||||||
| Total Other Expenses | (263,307 | ) | (335,138 | ) | (305,753 | ) | |||||||
| Income before income tax (provision ) benefit | 2,723,271 | 1,602,014 | 262,859 | ||||||||||
| Income tax (provision) benefit | (1,017,073 | ) | 101,376 | (92,701 | ) | ||||||||
| Net Income | $ | 1,706,198 | $ | 1,703,390 | $ | 170,158 | |||||||
| Income per Common Share | |||||||||||||
| Basic | $ | 0.04 | $ | 0.04 | $ | 0.00 | |||||||
| Diluted | $ | 0.04 | $ | 0.04 | $ | 0.00 | |||||||
| Weighted Average Common and Common | |||||||||||||
| Equivalent Shares: | |||||||||||||
| Basic | 38,242,535 | 38,146,391 | 38,097,226 | ||||||||||
| Diluted | 39,422,608 | 38,597,862 | 38,602,577 | ||||||||||
| 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, 2017 | March 31, 2016 | March 31, 2015 | ||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||
| Net Income | $ | 1,706,198 | $ | 1,703,390 | $ | 170,158 | ||||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
| Depreciation | 166,025 | 171,785 | 130,254 | |||||||||||||
| Amortization of deferred financing costs | 74,077 | 74,077 | 52,471 | |||||||||||||
| Change in inventory reserve | (60,000 | ) | 339,000 | (217,000 | ) | |||||||||||
| Change in allowance for bad debts | 81,404 | (122,952 | ) | 1,666 | ||||||||||||
| Stock-based compensation | 63,745 | 24,214 | 46,308 | |||||||||||||
| Change in net deferred tax assets | 929,322 | (102,976 | ) | 92,701 | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| (Increase) decrease in: | ||||||||||||||||
| Accounts receivable | (355,133 | ) | 207,331 | (512,283 | ) | |||||||||||
| Due from Crestmark Bank | – | – | 19,638 | |||||||||||||
| Due from PNC Bank | (58,467 | ) | (46,977 | ) | (137,415 | ) | ||||||||||
| Accounts receivable related parties | 26,152 | (26,152 | ) | |||||||||||||
| Inventories | (1,675,371 | ) | 3,418,192 | (1,403,554 | ) | |||||||||||
| Prepaid expenses and other current assets | 34,323 | (22,992 | ) | (1,521 | ) | |||||||||||
| Other non-current assets | (129 | ) | – | 6,236 | ||||||||||||
| Increase (decrease) in: | ||||||||||||||||
| Accounts payable | 659,657 | (2,044,967 | ) | 849,104 | ||||||||||||
| Due to related parties | (400,000 | ) | (986,206 | ) | (147,825 | ) | ||||||||||
| Accrued expenses | (23,784 | ) | 150,969 | 52,832 | ||||||||||||
| Warranty provisions | (68,800 | ) | 94,627 | (37,299 | ) | |||||||||||
| Obligations to customers for returns and allowances | (82,632 | ) | (278,327 | ) | (70,419 | ) | ||||||||||
| Net cash provided by (used in) operating activities | 1,016,587 | 2,552,036 | (1,105,948 | ) | ||||||||||||
| Cash flows from investing activities: | ||||||||||||||||
| Purchase of property and equipment | (148,228 | ) | (135,816 | ) | (35,600 | ) | ||||||||||
| Refund (deposit) of restricted cash | – | – | 138,042 | |||||||||||||
| Net cash (used in) provided by investing activities | (148,228 | ) | (135,816 | ) | 102,442 | |||||||||||
| Cash flows from financing activities: | ||||||||||||||||
| Proceeds from subscriptions receivable | 6,400 | – | – | |||||||||||||
| Proceeds from ecercise of stock options | 11,880 | – | – | |||||||||||||
| Payment on note payable related party – Ram Light Management, Ltd. | (696,612 | ) | (403,388 | ) | – | |||||||||||
| Payment of deferred financing costs | – | – | (222,231 | ) | ||||||||||||
| Payments on long-term capital lease | (1,078 | ) | (12,628 | ) | (12,076 | ) | ||||||||||
| Net cash used in financing activities | (679,410 | ) | (416,016 | ) | (234,307 | ) | ||||||||||
| Net change in cash | 188,949 | 2,000,204 | (1,237,813 | ) | ||||||||||||
| Cash at beginning of year | 2,116,490 | 116,286 | 1,354,099 | |||||||||||||
| Cash at end of year | $ | 2,305,439 | $ | 2,116,490 | $ | 116,286 | ||||||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||||||||||
| Cash paid for interest | $ | 253,008 | $ | 270,193 | $ | 180,371 | ||||||||||
| Cash paid for income taxes | $ | 58,955 | $ | – | $ | – | ||||||||||
| 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. | ||||||||||||||||
Investor Relations Contact:
Brendan Hopkins
(407) 645-5295
[email protected]
www.singingmachine.com
www.singingmachine.com/investors
