Singing Machine Announces 1st Quarter Earnings Release

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Aug 09, 2011, 06:49 ET

COCONUT CREEK, Fla., Aug. 9, 2011 /PRNewswire/ -- The Singing Machine Company, Inc. ("Singing Machine" or the "Company") (OTCBB: SMDM) announces the results for its first fiscal quarter ended June 30, 2011.

The Company announced net sales of approximately $1.78 million in the first quarter as compared with approximately $2.09 million over the same period last year (decrease of approximately 14.8%). The decrease in net sales is primarily a result of the Company taking a risk-adverse approach to carrying inventory in the first quarter. As a result of lack of inventory, the Company had to cancel some orders. The Company reported gross margin of approximately 24% as compared to approximately 27.5% in the same period of the prior year. This decline in gross margin is attributable to the Company offering aggressive pricing to European customers to grow its international distribution.

During the first quarter, selling expenses increased by approximately 7.6% as compared to the same period last year as the Company reached a cash settlement with MGA Entertainment, Inc. regarding their respective lawsuits against each other involving the "Bratz" license. Despite this, the Company reported Total Operating Expenses of approximately $936,000, a decline of approximately $100,000 as compared to the same period last year. As a result of reduced sales, the MGA settlement, and lower gross margin, the Company reported a net loss of approximately $500,000, a slight increase over last year's first quarter net loss of $470,000.

"Despite the slow first quarter, we feel confident about this fiscal-year," commented Gary Atkinson, Interim CEO. "This year Singing Machine will be coming out with thirteen new items for the fall. Due to this large investment in new product, we will be able to offer a broad and diverse product line-up to our growing distribution channels." Atkinson added, "We believe we are well-positioned to grow our market share this year."

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™, SMDigital™, SoundX™, and Sound X Kids™ and other brand names. The first to provide karaoke systems for home entertainment in the United States, The Singing Machine sells its products in North America, Europe and Australia. The Singing Machine is also the first to offer digital music downloads for play on home karaoke machines. See www.singingmachine.com for more details.

Forward-Looking Statements

This press release contains forwardlooking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forwardlooking 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, 2011. You should review our risk factors in our SEC filings which are incorporated herein by reference. Such forwardlooking statements speak only as of the date on which they are made and the company does not undertake any obligation to update any forwardlooking 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

			June 30, 2011		March 31, 2011
			(Unaudited)		(Audited)
Assets
Current Assets
	Cash and cash equivalents	$	755,682	$	674,712
	Accounts receivable, net of allowances of $169,765 and
	$175,804, respectively		851,747		1,205,209
	Due from related party - Starlight Consumer Electronics USA, Inc.		119,431		73,348
	Due from related party - Starlight Electronics Co., Ltd.		61,234		-
	Inventories, net		2,976,674		3,016,945
	Prepaid expenses and other current assets		40,705		59,310
	Total Current Assets		4,805,473		5,029,524

Property and Equipment, net			379,074		333,851
Other Non-Current Assets			164,678		164,678
	Total Assets	$	5,349,225	$	5,528,053

Liabilities and Shareholders' Deficit
Current Liabilities
	Accounts payable	$	1,598,217	$	1,118,674
	Due to related party - Starlight Marketing Development, Ltd.		2,011,470		2,063,213
	Due to related party - Ram Light Management, Ltd.		1,683,247		1,683,247
	Due to related party - Starlight R&D, Ltd.		431,373		431,373
	Due to related party - Cosmo Communications USA, Inc.		237,994		217,493
	Due to related party - Starlight Electronics Co., Ltd.		91,477		132,386
	Due to related parties - Other Starlight Group Companies		9,534		88,249
	Accrued expenses		247,702		256,535
	Current portion of long-term financing obligation		-		4,547
	Obligations to clients for returns and allowances		522,730		435,341
	Warranty provisions		63,333		144,022
	Total Current Liabilities		6,897,077		6,575,080

	Total Liabilities		6,897,077		6,575,080

Shareholders' Deficit
	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;
	37,835,793 and 37,835,793 shares issued and outstanding, respectively		378,357		378,357
	Additional paid-in capital		19,123,410		19,116,318
	Accumulated deficit		(21,049,619)		(20,541,702)
	Total Shareholders' Deficit		(1,547,852)		(1,047,027)
	Total Liabilities and Shareholders' Deficit	$	5,349,225	$	5,528,053

*The accompanying notes are an integral part of these consolidated financial statements.***

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

		For Three Months Ended
		June 30, 2011	June 30, 2010

Net Sales		$ 1,788,046	$ 2,091,627

Cost of Goods Sold		1,359,503	1,515,734

Gross Profit		428,543	575,893

Operating Expenses
	Selling expenses	348,676	249,089
	General and administrative expenses	555,612	675,576
	Depreciation and amortization	32,078	122,052
Total Operating Expenses		936,366	1,046,717

Loss from Operations		(507,823)	(470,824)

Other Expenses
	Interest expense	(94)	(8,636)

Net Other (Expenses)		(94)	(8,636)

Loss before provision for income taxes		(507,917)	(479,460)

Provision for income taxes		-	-

Net Loss		$ (507,917)	$ (479,460)

Loss per Common Share
	Basic and Diluted	$ (0.01)	$ (0.01)

Weighted Average Common and Common
	Equivalent Shares:
	Basic and Diluted	37,835,793	37,585,794

*The* *accompanying notes are an integral part of these consolidated financial statements.*

The Singing Machine Company, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
					For Three Months Ended
					June 30, 2011		June 30, 2010


Cash flows from operating activities
	Net Loss			$	(507,917)	$	(479,460)
	Adjustments to reconcile net loss to net cash and cash equivalents provided by operating activities:
		Depreciation and amortization			32,078		122,052
		Change in inventory reserve			1,004		-
		Change in allowance for bad debts			(6,039)		22,150
		Stock compensation			7,092		370
		Warranty provisions			(80,690)		(3,296)
	Changes in assets and liabilities:
	(Increase) Decrease in:
		Accounts receivable			359,502		50,590
		Inventories			39,267		(19,364)
		Prepaid expenses and other current assets			18,605		19,788
	Increase (Decrease) in:
		Accounts payable			479,543		767,730
		Accounts payable - related party			(258,182)		264,341
		Accrued expenses			(8,833)		(35,019)
		Obligations to clients for returns and allowances			87,388		(38,656)
			Net cash provided by operating activities		162,818		671,226
Cash flows from investing activities
	Purchase of property and equipment				(77,301)		-
			Net cash used in investing activities		(77,301)		-
Cash flows from financing activities
	Retention by factor, net				-		(132,440)
	Net payments pursuant to factoring facility				-		(533,929)
	Net repayment of short-term bank loan				-		(811,295)
	Payments on long-term financing obligation				(4,547)		(3,031)
	Net loan proceeds from related parties				-		225,752
			Net cash used in financing activities		(4,547)		(1,254,943)
Change in cash and cash equivalents					80,970		(583,717)

Cash and cash equivalents at beginning of period					674,712		865,777
Cash and cash equivalents at end of period				$	755,682	$	282,060

Supplemental Disclosures of Cash Flow Information:
	Cash paid for Interest			$	94	$	8,636


*The accompanying notes are an integral part of these consolidated financial statements.***