Singing Machine Announces Record Sales of $18.1 Million in 3rd Quarter Earnings Report, Over 1 Million Singing Machines Sold

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Feb 17, 2015, 03:01 ET

FORT LAUDERDALE, Fla., Feb. 17, 2015 /PRNewswire/ -- The Singing Machine Company, Inc. ("Singing Machine" or the "Company") (OTCBB: SMDM) today announced the results for its third fiscal quarter ended December 31, 2014.

The Company reported third-quarter net sales of approximately $18.1 million, as compared to net sales of approximately $16.8 million in the same quarter last year (increase of approximately 8%). The Company also posted an operating profit for the QE December 2014 of $1.7 million and net income of $1.0 million. Gross profit margins were 22.4% of sales compared to 24.4% in the same period last year. The increase in net sales reflected the addition of Wal-Mart Stores as a nationwide customer. The reduction in gross profit margin is attributable in large part to greater participation of Singing Machine products in special promotions at lower margins as part of the Company's strategy to grow its market for its products. Operating expenses declined in the QE December 2014 from QE December 2013 by $0.4 million, due to reduced discretionary expenditures in marketing and G&A plus reduced banking fees, resulting in income from operations for the QE December 2014 of $1.7 million compared to $1.5 million in the QE December 2013. Net income for the QE December 2014 was $1.0 million and $0.03 per share fully diluted compared to $0.8 million and $0.02 per share fully diluted in the QE December 2013, respectively.

For the nine months ended, Singing Machine reported net sales of approximately $36.6 million as compared with $29.1 million in the same period last year (an increase of 26%) and reported total operating expenses of $6.3 million compared to $5.7 million over the same period in the prior year. The increase in sales primarily reflects the addition of Wal-Mart Stores as a nationwide customer. Income from operations for the nine-months ended December 2014 was $1.5 million compared to $1.1 million in the same period a year ago. Net income for the nine-months ended December 2014 was $0.9 million or $0.02 per share fully diluted compared to $0.6 million and $0.02 per share fully diluted in the nine-months ended December 2013, respectively.

The Company's sales of its karaoke-systems in the nine-months ended December 2014 exceeded one million units, the highest level of unit sales in over a decade.

Bernardo Melo, VP of Sales, commented, "The large increase in Singing Machine sales for the nine months reflects a number of key successes. We have successfully absorbed the addition of Wal-Mart Stores with little effect to our longer-standing customers. Our products were carried in over 10,000 stores in North America and our online business continues to grow. The market for our products in the U.S. has expanded and so has our share of the market. Further, in many outlets our products sold out in December reinforcing the idea that there is a strong demand for home karaoke music entertainment. It also signals to our customers that our category can continue to grow."

Gary Atkinson, CEO, commented, "The continued expansion of our Company's sales in the December quarter is notable. We enter calendar 2015 with the industry's best set of mass merchant retailers, most of whom carry our products exclusively, and proven products that work great and have highly favorable customer demand across a wide age of consumers. Our investors should know we plan on continuing our strategy - to offer the industry's largest line of karaoke products; to innovate and improve our products to make them easier to use with today's technology; to make all formats of karaoke music widely available to our products; and to create a better experience for consumers with products that represent an excellent value while unlocking the educational and social benefits of singing for oneself and in sharing with others. We look forward to implementing our strategy in the quarters that follow."

About The Singing Machine
Based in the US, Singing Machine® is the North American leader in consumer karaoke products. 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 10,000 songs for streaming download through the Singing Machine Music Channel (http://store.singingmachine.com/). Singing Machine products are sold through 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, 2014. 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.

(Financial statements attached)

The Singing Machine Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS

			December 31, 2014		March 31, 2014
			(Unaudited)		(Audited)
Assets
Current Assets
	Cash	$	473,401	$	1,354,099
	Restricted cash		-		138,042
	Accounts receivable, net of allowances of $253,988 and
	$172,465, respectively		7,816,789		955,551
	Due from Crestmark Bank		-		19,638
	Due from related party - Starlight Consumer Electronics USA, Inc.		-		233,004
	Due from related party - Starlight Electronics USA, Inc.		-		51,196
	Due from related party - Starlight Electronics Co., Ltd		169,511		83,320
	Due from related party - Cosmo Communications Canada, Ltd		184,038		-
	Due from related party - Winglight Pacific, Ltd		582,133		-
	Inventories, net		7,641,229		5,827,613
	Prepaid expenses and other current assets		92,413		91,088
	Deferred financing costs		74,077		-
	Deferred tax asset, net		206,289		604,284
	Total Current Assets		17,239,880		9,357,835

Property and equipment, net			500,651		561,225
Other non-current assets			11,394		17,630
Deferred financing costs, net current portion			114,202		-
Deferred tax asset, net current portion			1,793,972		1,793,972
	Total Assets	$	19,660,099	$	11,730,662

Liabilities and Shareholders' Equity
Current Liabilities
	Accounts payable	$	4,397,407	$	1,918,076
	Due to related party - Starlight Marketing Development, Ltd.		-		1,107,678
	Subordinated related party debt - Starlight Marketing Development, Ltd.		-		816,753
	Note payable related party - Ram Light Management, Ltd.		673,825		-
	Subordinated related party debt - Ram Light Management, Ltd.		-		1,683,247
	Due to related party - Ram Light Management, Ltd		583,247		-
	Due to related party - Starfair Electronics Company, Ltd.		-		17,738
	Due to related party - Starlight R&D, Ltd.		1,997,389		194,678
	Due to related party - Cosmo Communications Canada, Inc.		-		50,441
	Due to related party - Starlight Consumer Electronics Co., Ltd.		257,436		1,051,913
	Due to related parties - Other Starlight Group Companies		-		3,534
	Accrued expenses		1,326,211		446,314
	Revolving line of credit		2,425,424		-
	Current portion of capital lease		12,488		12,076
	Obligations to clients for returns and allowances		275,258		469,838
	Warranty provisions		747,210		235,172
	Total Current Liabilities		12,695,895		8,007,458

Long-term capital lease, net of current portion			4,288		13,706
Note payable related party debt - Ram Light Management, Ltd.
	net of current portion		426,175		-
Subordinated related party debt - Starlight Marketing Development, Ltd.			1,924,431		-
	Total Liabilities		15,050,789		8,021,164

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;
	38,117,517 and 38,070,642 shares issued and outstanding, respectively		381,175		380,706
	Additional paid-in capital		19,305,965		19,262,127
	Accumulated deficit		(15,077,830)		(15,933,335)
	Total Shareholders' Equity		4,609,310		3,709,498
	Total Liabilities and Shareholders' Equity	$	19,660,099	$	11,730,662

*See notes to the condensed consolidated financial statements.*

The Singing Machine Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


		For Three Months Ended		For Nine Months Ended
		December 31, 2014	December 31, 2013	December 31, 2014	December 31, 2013


Net Sales		$ 18,086,370	$ 16,814,794	$ 36,583,388	$ 29,062,931

Cost of Goods Sold		14,034,505	12,707,912	28,853,864	22,251,890

Gross Profit		4,051,865	4,106,882	7,729,524	6,811,041

Operating Expenses
	Selling expenses	1,078,905	1,218,688	2,690,939	2,401,528
	General and administrative expenses	1,258,643	1,344,634	3,454,761	3,154,577
	Depreciation and amortization	33,969	54,506	96,173	112,483
Total Operating Expenses		2,371,517	2,617,828	6,241,873	5,668,588

Income from Operations		1,680,348	1,489,054	1,487,651	1,142,453

Other Expenses
	Interest expense	(118,713)	(41,102)	(200,198)	(50,810)
	Financing costs	(18,519)	-	(33,952)	-
Net Other Expenses		(137,232)	(41,102)	(234,150)	(50,810)

Income before income tax provision		1,543,116	1,447,952	1,253,501	1,091,643

Income tax provision		(509,252)	(627,278)	(397,995)	(488,084)

Net Income		$ 1,033,864	$ 820,674	$ 855,506	$ 603,559

Income per Common Share
	Basic	$ 0.03	$ 0.02	$ 0.02	$ 0.02
	Diluted	$ 0.03	$ 0.02	$ 0.02	$ 0.02

Weighted Average Common and Common
	Equivalent Shares:
	Basic	38,117,517	38,070,642	38,090,756	38,053,458
	Diluted	38,645,514	38,650,355	38,589,350	38,633,171

*See notes to the condensed consolidated financial statements.*

The Singing Machine Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
					For Nine Months Ended
					December 31, 2014		December 31, 2013


Cash flows from operating activities:
	Net Income			$	855,506	$	603,559
	Adjustments to reconcile net income to net cash (used in) provided by operating activities:
		Depreciation			96,173		112,483
		Amortization of deferred financing costs			33,952		-
		Change in inventory reserve			(103,000)		25,000
		Change in allowance for bad debts			81,523		116,426
		Loss from disposal of property and equipment			-		4,479
		Stock based compensation			44,307		74,953
		Warranty provisions			512,038		558,495
		Change in net deferred tax assets			397,995		488,084
	Changes in operating assets and liabilities:
	(Increase) Decrease in:
		Accounts receivable			(6,942,761)		(5,085,599)
		Due from Crestmark Bank			-		(212,505)
		Inventories			(1,710,616)		(1,625,394)
		Prepaid expenses and other current assets			(1,325)		(1,877)
		Other non-current assets			6,236		142,326
	Increase (Decrease) in:
		Accounts payable			2,479,331		3,078,953
		Net due to related parties			368,359		2,172,814
		Accrued expenses			879,896		624,222
		Obligations to clients for returns and allowances			(194,580)		(20,572)
			Net cash (used in) provided by operating activities		(3,196,966)		1,055,847
Cash flows from investing activities:
	Purchase of property and equipment				(35,599)		(207,178)
	Refund (deposit) of restricted cash				138,042		(137,967)
			Net cash provided by (used by) investing activities		102,443		(345,145)
Cash flows from financing activities:
	Net proceeds from revolving line of credit				2,425,424		-
	Net proceeds from Crestmark Bank credit facility				19,638		-
	Payment of deferred financing costs				(222,231)		-
	Payments on long-term capital lease				(9,006)		(7,670)
			Net cash provided by (used in) financing activities		2,213,825		(7,670)
Net change in cash					(880,698)		703,032

Cash at beginning of year					1,354,099		1,652,996
Cash at end of period				$	473,401	$	2,356,028

Supplemental Disclosures of Cash Flow Information:
	Cash paid for interest			$	170,729	$	50,810
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 condensed consolidated financial statements.*