Singing Machine Reports Fiscal 2017 Annual Earnings Report

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.