Singing Machine Announces 2nd Quarter Earnings Release

Nov 16, 2009, 18:55 ET from The Singing Machine Company, Inc.

COCONUT CREEK, Fla., Nov. 16 /PRNewswire-FirstCall/ -- The Singing Machine Company, Inc. ("Singing Machine" or the "Company") (OTC Bulletin Board: SMDM) announces the results for its second fiscal quarter ended September 30, 2009.

The Company reported net sales of approximately $6.99 million, representing a decline in net sales of $5.62 million, as compared to the same period last year. Net loss from operations increased to $285,293 as compared to net profit from operations of $128,354 in the same period last year. The Company believes that the decrease in sales volume is primarily attributable to a decline in direct import business, which is consistent with a conservative economy-wide trend among retailers to reduce and hold down their levels of inventory.

Despite sustaining a loss, the Company's gross margin improved over the same period last year from 16% to 19.8% (increase of 3.8%). Anticipating reduced sales volume, the Company also committed to reduce overhead and streamline operations resulting in a reduction in operating expenses of approximately $244,000 as compared to the same period last year (approximately a 14% reduction in overhead).

"The Company is moving in the right direction, despite the loss for the quarter," commented Tony Handal, CEO of the Company. "We have made deep and significant cuts this year in an effort to improve efficiency and move toward profitability. Additionally, we have been bolstering our reserves this fiscal year in order to restore health to the balance sheet. Unfortunately during this second quarter, we have seen our customers shift away from direct import programs in favor of traditional domestic programs. This requires the Company to import goods for its own stock for domestic sales. As a result, we have seen a slump in direct import business during the second quarter which has negatively impacted sales." Added Handal, "as consumer confidence builds we hope to see a return of our direct import business."

Regarding the online download business, Bernardo Melo, VP of Global Sales & Marketing, stated, "the online music program has been well received by our customers. This quarter we have seen promising results in traffic and conversion rates and we have received a lot of positive feedback. As our hardware product continues to reach retail shelves, the online volume continues to grow. We are also excited about our online music gift card program, initially launching at Toys R' Us this holiday season. We expect this program to add incremental traffic to our online store and also increase consumer awareness of karaoke content available in a digital format." Melo added, "In other positive news, we have seen very encouraging sell-thru from our customers so far which is very promising entering our key 6-week sales stretch. To date we are exceeding our initial forecasts with our key customers. Karaoke is still alive and well."

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), SMDigital(TM), SoundX(TM), and Sound X Kids(TM) 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 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, 2009. 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.

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

                                          September 30,              March 31,
                                              2009                     2009
                                          -------------             ----------
                                           (Unaudited)               (Audited)
    Current Assets
     Cash                                    $2,005,386              $957,163
     Accounts receivable, net of allowances
      of $353,716 and $261,980, respectively  2,196,694               972,345
     Due from factor                             15,945                73,854
     Inventories, net                         5,033,324             4,729,667
     Prepaid expenses and other current
      assets                                    403,681               526,563
                                          -------------             ----------
                  Total Current Assets        9,655,030             7,259,592

     Property and equipment, net                721,234               886,770
     Other non-current assets                   179,751               179,362
                                          -------------             ----------
                 Total Assets               $10,556,015            $8,325,724
                                          =============             =========

                         Liabilities and Shareholders' Equity
    Current Liabilities
     Accounts payable                        $4,384,804            $2,588,769
     Due to related parties, net              2,103,531             1,498,391
     Accrued expenses                           497,466               422,260
     Short-term loan - bank                   1,322,884                     -
     Current portion of long-term financing
        obligation                               18,186                18,186
     Customer credits on account              1,361,982               908,449
     Deferred gross profit on estimated returns 131,185               288,039
                                          -------------             ----------
               Total Current Liabilities      9,820,038             5,724,094

     Long-term financing obligation, less current
      portion                                    15,155                22,733
                 Total Liabilities            9,835,193             5,746,827
                                              ---------             ---------

     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; 37,449,432 and
         37,449,432 shares issued and
         outstanding                            374,494               374,494
       Additional paid-in capital            19,083,688            19,075,750
       Accumulated deficit                  (18,737,360)          (16,871,347)
                                          -------------             ----------
               Total Shareholders' Equity       720,822             2,578,897
                                          -------------             ----------
               Total Liabilities and
                Shareholders' Equity        $10,556,015            $8,325,724
                                          =============             =========

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

    The Singing Machine Company, Inc. and Subsidiaries

                         For Three Months Ended        For Six Months Ended
                        -----------------------      ------------------------
                        September     September      September      September
                           30,            30,            30,            30,
                          2009           2008           2009           2008
                        ----------  -----------      -----------  -----------

    Net Sales           $6,991,372  $12,616,396       $7,805,380  $14,386,742

    Cost of Goods Sold   5,607,768   10,595,445        6,707,398   12,163,142
                        ----------  -----------      -----------  -----------
    Gross Profit         1,383,604    2,020,951        1,097,982    2,223,600

    Operating Expenses
     Selling expenses      636,031      792,542          940,172    1,014,076
     General and
      expenses             930,353      996,556        1,790,607    1,918,755
     Depreciation and
      amortization         102,513      103,499          202,265      204,660
                        ----------  -----------      -----------  -----------
    Total Operating
     Expenses            1,668,897    1,892,597        2,933,044    3,137,491
                        ----------  -----------      -----------  -----------
    (Loss) Income from
     Operations           (285,293)     128,354       (1,835,062)    (913,891)

    Other Expenses
     Interest expense      (27,683)     (25,684)         (30,951)     (33,000)
                        ----------  -----------      -----------  -----------

    Net (Loss) Income    $(312,976)    $102,670      $(1,866,013)   $(946,891)
                        ==========  ===========      ===========  ===========
    (Loss) Income per
     Common Share
     Basic and Diluted      $(0.01)      $ 0.00           $(0.05)      $(0.03)

    Weighted Average Common
     and Common Equivalent
     Basic and Diluted  37,449,332   32,698,876       37,449,332   32,227,250

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

                The Singing Machine Company, Inc. and Subsidiaries

                                                 For Six Months Ended
                                         September 30,          September 30,
                                             2009                   2008
                                         -------------          -------------

    Cash flows from operating activities
     Net Loss                              $(1,866,013)           $(946,891)
     Adjustments to reconcile net loss to net cash
      and cash equivalents (used in) provided by
      operating activities:
       Depreciation and amortization           202,265              204,660
       Inventory reserve charge                191,179              (15,745)
       Change in allowance for bad debts        91,736              (40,088)
       Stock based compensation                  7,938                7,280
       Deferred gross profit on estimated sales
          returns                             (156,854)              (1,543)
     Changes in assets and liabilities:
      (Increase) Decrease in:
       Accounts receivable                  (3,084,916)          (5,949,946)
       Inventories                            (494,836)          (6,370,484)
       Prepaid expenses and other current
        assets                                 122,882             (100,173)
       Other non-current assets                   (390)              (8,958)
      Increase (Decrease) in:
       Accounts payable                      1,796,035            7,945,552
       Accounts payable - related party        605,140            5,473,963
       Accrued expenses                         75,207              181,142
       Customer credits on account             453,533             (105,701)
                                               -------             --------
        Net cash (used in) provided by operating
            activities                      (2,057,094)             273,068
                                            ----------              -------
    Cash flows from investing activities
     Purchase of property and equipment        (38,377)            (401,293)
     Disposal of property and equipment          1,648                    -
                                                 -----                    -
        Net cash used in investing activities  (36,729)            (401,293)
                                               -------             --------
    Cash flows from financing activities
     Borrowings from factor, net                57,909                2,782
     Net proceeds pursuant to factoring
      facility                               1,768,830                    -
     Net proceeds from short-term bank loan  1,322,884              153,845
     Payments on long-term financing obligation (7,577)              51,528
     Net loan proceeds from related parties          -              452,321
                                             ---------              -------
        Net cash provided by financing
         activities                          3,142,046             660,476
                                             ---------             -------
    Change in cash and cash equivalents      1,048,223             532,251

    Cash and cash equivalents at beginning
     of period                                 957,163             447,816
                                               -------             -------
    Cash and cash equivalents at end
     of period                              $2,005,386            $980,067
                                            ==========             =======

    Supplemental Disclosures of Cash
     Flow Information:
     Cash paid for Interest                    $30,951             $33,000
                                               =======              ======
    Non-Cash Financing Activities:
     Conversion of trade payable to equity          $-            $197,500
                                               =======            ========

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

SOURCE The Singing Machine Company, Inc.