/EINPresswire.com/ -- FORT LAUDERDALE, FL--(Marketwired - Feb 14, 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 third quarter ended December 31, 2016.

Third Quarter and Year-to-Date Highlights:

• Year-to-date earnings per share of $0.07; EBITDA earnings per share of $0.10.
• Gross margin for the quarter improved by 3.8% to 30.9%.
• Net sales year-to-date increased 9% to $49.3 million; net sales for the quarter decreased to $16.3 million based primarily on earlier timing of shipments.
• Net income before tax for the quarter held approximately the same to $1.9 million, compared to approximately $2.0 million in the same period last year.
• Year-to-date net income before tax increased 33% to approximately $4.0 million compared to approximately $3.0 million in the same period last year.
  
  

Singing Machine reports net sales of approximately $16.3 million for the quarter-ended December 31, 2016 period, compared to approximately $20.7 million in the same quarter the prior year. The decrease in net sales is primarily due to timing of shipments which occurred earlier this fiscal year than last year, due to more year-round business and earlier retailer demand. Year-to-date net sales increased by 9% to approximately $49.3 million compared to $45.2 million reported in the same period in the prior year. The primary reason for the growth was due to one major retailer carrying a Black Friday promotion as well as expanded growth into the United Kingdom.

Gross profit margin increased by 3.8% from 27.1% to 30.9%. The increase in gross margin was due to cost reductions the Company achieved with its suppliers and better margin on the digital download series of products. 

Total operating expenses decreased to approximately $3.0 million compared to $3.4 million in the prior year. The decrease is a result of reduced variable selling expenses associated with the decrease in overall net sales. The balance of the decrease was due to an overall reduction in general and administrative expenses.

Despite the reduction in net sales for the quarter, the Company reported substantially the same income from operations of $1.9 million compared to income from operations of approximately $2.1 million in the same period in the prior year. Pre-tax income held consistent due to the Company reporting higher gross margin of 30.9% compared to 27.1% in the prior year and a reduction in overall operating expenses.

Year-to-date income from operations increased by 33% to approximately $4.0 million compared to approximately $3.0 million in the prior year.

Net income for the quarter decreased by approximately $0.7 million to $1.3 million compared to $2.0 million in the same period last year. The primary reason for the reduction in net income was due to a reversal of an income tax valuation reserve which the Company recognized last year. This year, there was no income tax valuation reversal which resulted in an increase of $0.6 million income tax provision. Net income through the first nine months was $2.7 million compared to approximately $2.6 million over the same period last year, due primarily to the increase in income tax provision.

Management Commentary:

Gary Atkinson, Singing Machine CEO, commented, "We're pleased with our year-to-date growth in net sales and pre-tax bottom line. We had a planned reduction in overall 3^rd quarter sales, which occurred due to more customers buying year-round and earlier demand from retailers. We anticipate less of a reliance on our third quarter and a healthier balance of sales between quarters as we continue to grow. This fiscal year we've grown net sales by 9% over last year and we've grown pre-tax net income by 33% to $4.0 million. On the product roadmap, we significantly expanded our distribution of our Digital Download Line of products and saw impressive growth in both downloading and streaming subscriptions."

Bernardo Melo, Vice President of Sales, commented, "The great results reported this year are the result of our expanded retailer distribution both domestically and abroad. We saw tremendous wins in the U.K. where our product was sold out before Christmas. We also had fantastic Black Friday and Christmas successes across all our major retailers with our sell-thru averaging about 88%. Ecommerce also continues to grow significantly year-over-year with ecommerce sales accounting for over 18% of Company sales and our major ecommerce retailer experienced a 40% increase in revenue on Singing Machine sales year-over-year. With many more exciting product releases scheduled and our new Singing Machine Kids line of toy products debuting this year, we look forward to continuing our organic growth strategy domestically and abroad."

Earnings Call Information:

The Company will host a conference call today, Tuesday, February 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 (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 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, 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
					December 31, 2016				March 31, 2016
					(Unaudited)
Assets
Current Assets
	Cash				$	403,729			$	2,116,490
	Accounts receivable, net of allowances of $216,997 and $51,179, respectively					9,783,196				1,381,789
	Due from PNC Bank					-				184,392
	Accounts receivable related party - Cosmo Communications Canada, Ltd					55,849				19,077
	Accounts receivable related party - Winglight Pacific, Ltd					130,505				-
	Accounts receivable related party - other					-				7,075
	Inventories, net					5,370,784				3,690,975
	Prepaid expenses and other current assets					107,316				115,601
	Deferred financing costs					40,125				74,077
			Total Current Assets			15,891,504				7,589,476
Property and equipment, net						414,223				430,602
Other non-current assets						11,505				11,394
Deferred financing costs, net of current portion						-				21,606
Deferred tax asset						1,104,887				2,408,531
			Total Assets		$	17,422,119			$	10,461,609
Liabilities and Shareholders' Equity
Current Liabilities
	Accounts payable				$	1,490,939			$	722,213
	Note payable related party - Ram Light Management, Ltd.					173,955				696,612
	Due to related party - Ram Light Management, Ltd					-				400,000
	Accrued expenses					2,066,644				650,115
	Revolving line of credit					2,274,291				-
	Capital lease					-				1,078
	Obligations to customers for returns and allowances					3,825				121,092
	Warranty provisions					1,075,927				292,500
	Subordinated related party debt - Starlight Marketing Development, Ltd.					1,924,431				-
			Total Current Liabilities			9,010,012				2,883,610
Subordinated related party debt - Starlight Marketing Development, Ltd.						-				1,924,431
			Total Liabilities			9,010,012				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; 38,259,303 and 38,161,635 shares issued and outstanding, respectively					382,593				381,816
	Additional paid-in capital					19,403,740				19,337,939
	Subscriptions receivable					-				(6,400	)
	Accumulated deficit					(11,374,226	)			(14,059,787	)
			Total Shareholders' Equity			8,412,107				5,653,568
			Total Liabilities and Shareholders' Equity		$	17,422,119			$	10,461,609
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, 2016				December 31, 2015				December 31, 2016				December 31, 2015
Net Sales			$	16,319,804			$	20,667,069			$	49,308,247			$	45,194,527
Cost of Goods Sold				11,283,550				15,066,443				36,625,678				33,784,839
Gross Profit				5,036,254				5,600,626				12,682,569				11,409,688
Operating Expenses
	Selling expenses			1,610,430				1,936,715				4,262,531				4,225,677
	General and administrative expenses			1,319,871				1,431,993				4,033,853				3,736,230
	Depreciation			39,217				47,497				126,807				122,162
Total Operating Expenses				2,969,518				3,416,205				8,423,191				8,084,069
Income from Operations				2,066,736				2,184,421				4,259,378				3,325,619
Other Expenses
	Interest expense			(102,276	)			(91,847	)			(185,341	)			(244,765	)
	Financing costs			(18,519	)			(18,519	)			(55,558	)			(55,558	)
Total Other Expenses				(120,795	)			(110,366	)			(240,899	)			(300,323	)
Income Before Income Tax Provision				1,945,941				2,074,055				4,018,479				3,025,296
Income Tax Provision				(633,783	)			(67,142	)			(1,332,918	)			(441,836	)
Net Income			$	1,312,158			$	2,006,913			$	2,685,561			$	2,583,460
Income per Common Share
	Basic		$	0.03			$	0.05			$	0.07			$	0.07
	Diluted		$	0.03			$	0.05			$	0.07			$	0.07
Weighted Average Common and Common
Equivalent Shares:
	Basic			38,244,825				38,161,635				38,210,502				38,140,458
	Diluted			39,164,627				38,686,019				39,130,305				38,638,925
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, 2016				December 31, 2015
Cash flows from operating activities:
	Net Income					$	2,685,561			$	2,583,460
	Adjustments to reconcile net income to net cash used in operating activities:
			Depreciation				126,807				122,162
			Amortization of deferred financing costs				55,558				55,558
			Change in inventory reserve				171,711				139,000
			Change in allowance for bad debts				165,818				(27,219	)
			Stock based compensation				54,698				14,885
			Change in net deferred tax asset				1,303,644				441,836
	Changes in operating assets and liabilities:
		(Increase) decrease in:
			Accounts receivable				(8,567,225	)			(8,805,401	)
			Due from PNC Bank				184,392				-
			Accounts receivable - related parties				(160,202	)			(636,131	)
			Inventories				(1,851,520	)			3,231,011
			Prepaid expenses and other current assets				8,285				(59,439	)
			Other non-current assets				(111	)			-
		Increase (decrease) in:
			Accounts payable				768,726				(621,982	)
			Due to related parties				(400,000	)			129,782
			Accrued expenses				1,416,529				1,567,766
			Obligations to clients for returns and allowances				(117,267	)			(392,728	)
			Warranty provisions				783,427				863,981
				Net cash used in operating activities			(3,371,169	)			(1,393,459	)
Cash flows from investing activities:
	Purchase of property and equipment						(110,428	)			(142,116	)
				Net cash used in investing activities			(110,428	)			(142,116	)
Cash flows from financing activities:
	Net proceeds from revolving line of credit						2,274,291				1,928,556
	Proceeds from subscription receivable						6,400				-
	Proceeds from exercise of stock options						11,880				-
	Payments on note payable related party - Ram Light Management, Ltd.						(522,657	)			(266,909	)
	Payments on capital lease						(1,078	)			(9,418	)
				Net cash provided by financing activities			1,768,836				1,652,229
Net change in cash							(1,712,761	)			116,654
Cash at beginning of period							2,116,490				116,286
Cash at end of period						$	403,729			$	232,940
Supplemental disclosures of cash flow information:
	Cash paid for interest					$	185,341			$	218,733
See notes to the condensed consolidated financial statements.