Singing Machine Announces 3rd Consecutive Year of Profit in Fiscal 2014 Annual Report
FORT LAUDERDALE, Fla., June 30, 2014 /PRNewswire/ -- The Singing Machine Company, Inc. ("Singing Machine" or the "Company") (OTCBB: SMDM) today announced financial results for its fiscal year ended March 31, 2014.
For the full 2014 fiscal year, the Company reported approximate net sales of $31.4 million, gross profits of $7.1 million, and net income of $1.0 million dollars ($0.03 cents per share).
Gary Atkinson, Singing Machine CEO commented, "Singing Machine has now recorded profits for three consecutive years and shown the ability to sustain and digest the sales growth that has been achieved over the last three years, while positioning the Company for renewed sales growth in the coming year. Though our net sales for FYE March 2014 reflected a decline in reported net sales from the prior year, roughly $2.1 million of the FYE March 2013 reported net sales were for customer inventory, as one of our major retailers transitioned from carrying our products seasonally to year-around. As such, we estimate that Singing Machine product sales at the consumer level actually increased in FYE March 2014 over the FYE March 2013."
Atkinson continued, "FYE March 2014 was a highly productive year for the Company, perhaps more strategically than financially. We are hopeful the financial impact will be more apparent in next year's results. Singing Machine has consolidated its position as the market leader for consumer karaoke systems in North America. New retail relationships are being added to our distribution channels, representing thousands of new stores carrying our products. Retailers that previously did not stock karaoke products are now desiring to do so and carrying our products exclusively. A number of our retailers that sold our products only seasonally are now transitioning to year-around sales due to the stable demand for karaoke entertainment. Our Singing Machine Home(TM) product that was test marketed last holiday season is expected to be ready for roll-out marketing in the fall. Also we are progressing in plans to expand our financial credit facilities with new relationships that provide for future flexibility for growth. We intend to update shareholders once our plans result in reportable events. We are committed to growing shareholder value."
Net sales for FYE March 2014 were $31.4 million compared to $34.4 million in the same period last year, a decrease of $3.0 million (8.7% decrease). The decline in net sales reflects several factors, among these (i) a major retail customer transitioned to year-around sales in FYE 2013 had purchased $2.1 million of goods held in its inventory as of March 2013 that impacted the timing of purchases for FYE March 2014 and (ii) an estimated $0.7 million in sales were lost due to factory audit and delays in shipping from Chinese contract suppliers that impacted many consumer electronics companies last holiday season and (iii) the inability to respond to un-forecasted demand due to the length of the supply cycle.
Gross profits of $7.1 million in FYE March 2014 declined compared to $8.1 million in FYE March 2013, reflecting principally the decline in reported net sales.
Total operating expenses increased by approximately $0.3 million, primarily due to a rise in general and administrative expenses. G&A expenses increased due to (i) reductions in the use of our warehouse and logistics services by our strategic partner and major shareholder, Starlight Group, resulting in lowered fees from them to offset our costs, (ii) an increase in one-time expenses for the testing and development of the Singing Machine Home(TM) product and (iii) stock option expenses for key management.
As a result, the Company reported operating profits of approximately $0.3 million for FYE March 2014, compared to $1.6 million in FYE March 2013. EBITDA for FYE March 2014 was $0.4 million compared to $1.7 million in the previous year. The Company recorded an income tax benefit of approximately $0.8 million, resulting in net income of approximately $1.0 million dollars ($0.03 cents per share) in FYE March 2014, compared to an income tax benefit of $1.6 million and net income of $3.1 million in the previous year.
Bernardo Melo, VP of Sales & Marketing commented, "The demand for karaoke entertainment from Singing Machine is growing. Across the board, our major retailers showed dramatically improved sell-through rates during the October - December 2013 holiday season. Our retailers actually sold more units while carrying less inventory, creating a situation where the Company couldn't keep up with product demand. Ultimately we ended up missing out on sales due to the inability of our supply chain to fulfill the demand that exceeded our retailer forecasts." Melo added, "Following the Singing Machine Home(TM) market roll-out this year, we are evolving our products to incorporate music streaming and wireless features that enhance their use. Importantly, the Home(TM) takes us into a product sector that opens our Company to the larger market of general music listening and everyday use, with karaoke as a feature rather that as the principal product use. Consumers appear to be willing to pay more for these attributes. In the future we hope that music subscriptions over time will become a significant component to SMC's business model. We are excited to continue leading the innovation in the karaoke market."
About The Singing Machine
Incorporated in 1982, The Singing Machine Company develops and distributes a full line of consumer-oriented karaoke machines and music under The Singing Machine(TM) and SoundX(TM) brand names. The first to provide karaoke systems for home entertainment in the United States, the Company sells its products primarily in the United States and Canada through major mass merchandisers and on-line retailers. Singing Machine offers digital karaoke music downloads and streaming services by subscription for play on its karaoke machines, inputted either directly to the karaoke machines or by personal computer and mobile devices. 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
CONSOLIDATED BALANCE SHEETS
March 31, 2014 March 31, 2013
-------------- --------------
Assets
------
Current Assets
Cash $1,354,099 $1,652,996
Restricted cash 138,042 -
Accounts receivable, net of allowances of $172,465 and
$180,306, respectively 955,551 1,100,475
Due from Crestmark Bank 19,638 -
Due from related party - Starlight Consumer Electronics USA, Inc. 233,004 291,343
Due from related party - Starlight Electronics USA, Inc. 51,196 50,501
Due from related party - Starlight Electronics Co., Ltd 83,320 -
Due from related party - Cosmo Communications Canada, Ltd - 61,310
Inventories, net 5,827,613 4,123,407
Prepaid expenses and other current assets 91,088 84,441
Deferred tax asset, net 604,284 421,340
Total Current Assets 9,357,835 7,785,813
Property and Equipment, net 561,225 482,777
Other non-current assets 17,630 159,956
Deferred Tax Asset, net non-current portion 1,793,972 1,198,119
Total Assets $11,730,662 $9,626,665
Liabilities and Shareholders' Equity
------------------------------------
Current Liabilities
Accounts payable $1,918,076 $1,135,125
Due to related party - Starlight Marketing Development, Ltd. 1,107,678 1,107,678
Subordinated related party debt - Starlight Marketing Development, Ltd. 816,753 -
Subordinated related party debt - Ram Light Management, Ltd. 1,683,247 -
Due to related party - Starfair Electronics Company, Ltd. 17,738 -
Due to related party - Starlight R&D, Ltd. 194,678 419,600
Due to related party - Cosmo Communications Canada, Inc. 50,441 -
Due to related party - Starlight Consumer Electronics Co., Ltd. 1,051,913 585,125
Due to related parties - Other Starlight Group Companies 3,534 3,534
Accrued expenses 446,314 686,012
Current portion of capital lease 12,076 -
Obligations to clients for returns and allowances 469,838 376,289
Warranty provisions 235,172 215,471
Total Current Liabilities 8,007,458 4,528,834
Long-term capital lease, net of current portion 13,706 -
Subordinated related party debt - Starlight Marketing Development, Ltd.,
net of current portion - 816,753
Subordinated related party debt - Ram Light Management, Ltd. - 1,683,247
Total Liabilities 8,021,164 7,028,834
Shareholders' Equity
Preferred stock, $1.00 par value; 1,000,000 shares authorized, no
shares issued and outstanding - -
Common stock, Class A, $.01 par value; 100,000 shares
authorized; no shares issued and outstanding - -
Common stock, $0.01 par value; 100,000,000 shares authorized;
38,070,642 and 38,028,975 shares issued and outstanding 380,706 380,289
Additional paid-in capital 19,262,127 19,155,193
Accumulated deficit (15,933,335) (16,937,651)
Total Shareholders' Equity 3,709,498 2,597,831
Total Liabilities and Shareholders' Equity $11,730,662 $9,626,665
The accompanying notes are an integral part of these consolidated financial statements.
The Singing Machine Company, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended
-------------------
March 31, 2014 March 31, 2013 March 30, 2012
-------------- -------------- --------------
Net Sales $31,379,629 $34,437,774 $25,943,832
Cost of Goods Sold 24,273,038 26,368,945 20,292,738
---------- ---------- ----------
Gross Profit 7,106,591 8,068,829 5,651,094
--------- --------- ---------
Operating Expenses
Selling expenses 2,402,153 3,078,340 2,470,985
General and administrative
expenses 4,257,335 3,310,325 2,537,379
Depreciation expense 168,138 110,267 171,818
Total Operating Expenses 6,827,626 6,498,932 5,180,182
--------- --------- ---------
Income from Operations 278,965 1,569,897 470,912
Other Expenses
Interest expense (53,446) (48,421) (7,796)
Income before income tax benefit 225,519 1,521,476 463,116
Income tax benefit 778,797 1,619,459 -
------- --------- ---
Net Income $1,004,316 $3,140,935 $463,116
========== ========== ========
Net Income per Common Share
Basic $0.026 $0.083 $0.012
Diluted $0.026 $0.082 $0.012
Weighted Average Common and Common
Equivalent Shares:
Basic 38,057,628 37,973,309 37,877,460
Diluted 38,647,290 38,360,324 37,877,460
The accompanying notes are an integral part of these consolidated financial statements.
The Singing Machine Company, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
-------------------
March 31, 2014 March 31, 2013 March 30, 2012
-------------- -------------- --------------
Cash flows from operating activities
Net Income $1,004,316 $3,140,935 $463,116
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 168,138 110,267 171,818
Change in inventory reserve 135,000 (160,000) 211,999
Change in allowance for bad debts (7,841) 11,752 (7,250)
Loss from disposal of property and equipment 4,479 - 31,027
Stock based compensation 107,351 14,777 26,030
Warranty provisions 19,701 (4,289) 75,738
Change in net deferred tax assets (778,796) (1,619,459) -
Changes in operating assets and liabilities:
(Increase) Decrease in:
Accounts receivable 152,765 (326,737) 426,969
Due from Crestmark Bank (19,638) - -
Inventories (1,839,206) 44,985 (1,203,446)
Prepaid expenses and other current assets (6,647) (31,208) 6,077
Other non-current assets 142,326 (282) 5,004
Increase (Decrease) in:
Accounts payable 782,951 (168,270) 184,721
Accounts payable - net due to related party 345,679 18,116 (347,946)
Accrued expenses (239,699) 517,856 (88,379)
Obligations to clients for returns and allowances 93,549 133,910 (192,962)
Net cash provided by (used in) operating activities 64,428 1,682,353 (237,484)
------ --------- --------
Cash flows from investing activities
Purchase of property and equipment (214,677) (296,822) (165,216)
Deposit of restricted cash (138,042) - -
Net cash used in investing activities (352,719) (296,822) (165,216)
-------- -------- --------
Cash flows from financing activities
Payments on long-term capital lease (10,606) - (4,547)
Net cash used in financing activities (10,606) - (4,547)
------- --- ------
Change in cash (298,897) 1,385,531 (407,247)
Cash beginning of period 1,652,996 267,465 674,712
--------- ------- -------
Cash at end of period $1,354,099 $1,652,996 $267,465
Supplemental Disclosures of Cash Flow Information:
Cash paid for Interest $53,446 $48,421 $7,796
Cash paid for Income Taxes $13,348 $3,988 $4,332
Supplemental Disclosures of Non-cash Investing Activities:
Property and equipment purchased under capital lease $36,388 $ - $ -
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The accompanying notes are an integral part of these consolidated financial statements.
SOURCE The Singing Machine Company, Inc.
The Singing Machine Company, Inc.
CONTACT: Gary Atkinson, (954) 596 - 1000 ext. 101,
www.singingmachine.com
Web Site:
http://www.singingmachine.com
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