Singing Machine Announces 40% Increase in Sales in First Quarter Earnings Report

FORT LAUDERDALE, FL--(Marketwired - Aug 15, 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 first quarter ended June 30, 2016.

First Quarter Highlights:

• Net sales for the June 30, 2016 quarter increased by 40% from $3.5 million to $4.9 million, compared to the same period from last year.
• EBITDA for the period improved by approximately $0.2 million compared to the same period last year.
• Related party debt paid down by $1.3 million compared to the same period last year.
  
  

Singing Machine reports net sales of approximately $4.9 million for the quarter-ended June 30, 2016 period, an increase of 40% from the prior year ($3.5 million). The increase in net sales is attributable to an increase in sales to one major retailer for a new holiday program.

Gross profit increased by approximately $0.3 million to $1.1 million, or 23.5% of net sales compared to approximately $0.85 million or 24.8% of net sales reported in the prior year. The decrease in gross profit margin is due to one retailer taking delivery of their holiday promotional goods earlier than usual. 

Total operating expenses increased to $1.7 million compared to $1.6 million in the prior year. 

As a result, the Company reported a decrease of $167,000 in loss from operations to $571,000 compared to a loss from operations of approximately $739,000 in the same period in the prior year. Loss before income taxes improved by approximately $200,000 compared to the prior year due to the increase in sales and the aforementioned reasons. Net loss for the period decreased to $437,000 compared to $495,000 in the prior year representing a loss of $0.01 per share on a fully diluted basis.

Management Commentary:

Gary Atkinson, Singing Machine CEO commented, "The Company continues to see strong growth in in our first quarter -- which is historically one of our slowest quarters. We grew sales 40% year over year in our first quarter and reduced our loss before taxes by approximately $200,000. Last year, first quarter sales represented approximately 7% of overall sales for the fiscal year ended March 31, 2016."
Atkinson added, "As we look toward our upcoming holiday season, we continue to have the best and biggest names of retail partners and the largest market share for consumer karaoke products in North America. We also anticipate to ship 500% more digital download machines than we did in the prior year with 99% of our total product fleet to include Bluetooth® access to our mobile karaoke app. Additionally, our backlog of purchase indications from our customers exceeds those held at this same time last year."

Earnings Call Information:

The Company will host a conference call today, Monday, August 15, 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 877-876-9175 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
			June 30, 2016				March 31, 2016
			(Unaudited)
Assets
Current Assets
	Cash		$	444,515			$	2,116,490
	Accounts receivable, net of allowances of $74,498 and $51,179, respectively			3,451,300				1,381,789
	Due from PNC Bank			861				184,392
	Accounts receivable related party - Cosmo Communications Canada, Ltd			154,247				19,077
	Accounts receivable related party - Winglight Pacific, Ltd			192,976				-
	Accounts receivable related parties - other			4,262				7,075
	Inventories, net			8,367,957				3,690,975
	Prepaid expenses and other current assets			148,806				115,601
	Deferred financing costs			74,077				74,077
		Total Current Assets		12,839,001				7,589,476
Property and equipment, net				452,338				430,602
Other non-current assets				11,523				11,394
Deferred financing costs				3,087				21,606
Deferred tax asset				2,607,119				2,408,531
		Total Assets	$	15,913,068			$	10,461,609
Liabilities and Shareholders' Equity
Current Liabilities
	Accounts payable		$	6,326,737			$	722,213
	Note payable related party - Ram Light Management, Ltd.			558,075				696,612
	Due to related party - Ram Light Management, Ltd			201,000				400,000
	Due to related party - Starlight Electronics Co., Ltd			707,819				-
	Due to related party - Merrygain Holding Co., Ltd			12,829				-
	Accrued expenses			734,276				650,115
	Current portion of capital lease			-				1,078
	Obligations to customers for returns and allowances			22,414				121,092
	Warranty provisions			193,263				292,500
		Total Current Liabilities		8,756,413				2,883,610
Subordinated related party debt - Starlight Marketing Development, Ltd.				1,924,431				1,924,431
		Total Liabilities		10,680,844				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; 38,181,635 and 38,161,635 shares issued and outstanding, respectively			381,816				381,816
	Additional paid-in capital			19,347,268				19,337,939
	Subscriptions receivable			-				(6,400	)
	Accumulated deficit			(14,496,860	)			(14,059,787	)
		Total Shareholders' Equity		5,232,224				5,653,568
		Total Liabilities and Shareholders' Equity	$	15,913,068			$	10,461,609

See notes to the condensed consolidated financial statements.

The Singing Machine Company, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
		For Three Months Ended
		June 30, 2016				June 30, 2015
Net Sales		$	4,859,392			$	3,466,874
Cost of Goods Sold			3,715,709				2,608,453
Gross Profit			1,143,683				858,421
Operating Expenses
	Selling expenses		424,878				457,727
	General and administrative expenses		1,246,851				1,101,981
	Depreciation		43,795				37,333
Total Operating Expenses			1,715,524				1,597,041
Loss from Operations			(571,841	)			(738,620	)
Other Expenses
	Interest expense		(16,027	)			(50,112	)
	Financing costs		(18,519	)			(18,519	)
Total Other Expenses			(34,546	)			(68,631	)
Loss Before Income Tax Benefit			(606,387	)			(807,251	)
Income Tax Benefit			169,314				312,325
Net Loss		$	(437,073	)		$	(494,926	)
Loss per Common Share
	Basic and Diluted	$	(0.01	)		$	(0.01	)
Weighted Average Common and Common Equivalent Shares:
	Basic and Diluted		38,181,635				38,117,517
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
					June 30, 2016				June 30, 2015
Cash flows from operating activities:
	Net Loss				$	(437,073	)		$	(494,926	)
	Adjustments to reconcile net loss to net cash used in operating activities:
			Depreciation			43,795				37,333
			Amortization of deferred financing costs			18,519				18,519
			Change in inventory reserve			66,000				(37,560	)
			Change in allowance for bad debts			23,319				(127,433	)
			Stock based compensation			9,329				2,001
			Change in net deferred tax asset			(198,588	)			(312,325	)
	Changes in operating assets and liabilities:
		(Increase) decrease in:
			Accounts receivable			(2,092,830	)			(80,027	)
			Due from PNC Bank			183,531				137,415
			Accounts receivable related parties			(325,333	)			(94,252	)
			Inventories			(4,742,982	)			(624,621	)
			Prepaid expenses and other current assets			(33,205	)			1,914
			Other non-current assets			(129	)			-
		Increase (decrease) in:
			Accounts payable			5,604,524				258,092
			Due to related parties			521,648				35,456
			Accrued expenses			84,161				182,533
			Customer deposits			-				287,110
			Obligations to clients for returns and allowances			(98,678	)			(389,058	)
			Warranty provisions			(99,237	)			(44,799	)
				Net cash used in operating activities		(1,473,229	)			(1,244,628	)
Cash flows from investing activities:
	Purchase of property and equipment					(65,531	)			(42,157	)
				Net cash used in investing activities		(65,531	)			(42,157	)
Cash flows from financing activities:
	Net proceeds from revolving line of credit					-				1,537,014
	Net proceeds from subscription receivable					6,400				-
	Payment on note payable related party - Ram Light Management, Ltd.					(138,537	)			-
	Payments on capital lease					(1,078	)			(3,105	)
				Net cash (used in) provided by financing activities		(133,215	)			1,533,909
Net change in cash						(1,671,975	)			247,124
Cash at beginning of period						2,116,490				116,286
Cash at end of period					$	444,515			$	363,410
Supplemental disclosures of cash flow information:
	Cash paid for interest				$	15,027			$	9,665
See notes to the condensed consolidated financial statements.