Singing Machine Announces 3rd Quarter Financial Results

Tuesday, February 17, 2009 6:28 PM

The Singing Machine Company, Inc. (“Singing Machine” or the “Company”) (NYSE Alternext:SMD) today announced financial results for its third quarter ended December 31, 2008. The Company reported approximately $16.6 million in net sales for the third quarter which is an increase of approximately $2.8 million (20%) over the same period last year. The increase in sales is primarily due to late shipments from our manufacturers which caused typical 2^nd quarter sales to be moved into the 3^rd quarter.

The Company reported $463,701 in net income for the quarter, down approximately $304,000 from last year’s third quarter net income of approximately $767,000. The decrease in net income can be primarily attributed to an approximate 5% reduction in gross margin from 27.2% to 22.5%, as compared to the same period last year. The reduction in gross margin is attributed to price increases the Company absorbed earlier in the year from its Asian manufacturers. These price increases were due to what the Company believes were inflated plastic prices caused by the increased price of oil and other key components. In addition, the current economic recession resulted in cancelled sales and losses due to various customer bankruptcies. This loss of business along with a slow retail holiday season negatively impacted the Company’s projected year-to-date gross sales.

“The downturn in the global economy has affected us all. Although the Company’s results are below our expectations, we still managed to post strong sales and our products show continued popularity. Our brand strength and position in the market seems to be driving business to us in large part because of the quality products we offer. We are absorbing the difficult economy and are moving ahead with all of the initiatives we started this year. We need to continue to extract synergies from our business and find new ways to be more productive in the coming year,” commented Tony Handal, CEO. “Looking at the numbers we feel there is a lot of room for improvement. My management team and I are not content with the three quarters we have had. However, we managed to keep our year-to-date net sales relatively steady despite this downward economy.” Handal added, “We look forward to unveiling a ground-breaking online Karaoke music business and introducing a fresh and innovative karaoke product-line for 2009. We are committed to growing our business by getting placement on new retail shelves while continuing to diversify our product line. To brace ourselves for the potential of a slow retail year, management has already identified a number of cost cutting measures to reduce overhead while keeping a focus on brand strategy and revenue growth.”

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, Bratz, SoundX and other brand names. The first to provide karaoke systems for home entertainment in the United States, the Company sells its products in North America, Europe and Australia.

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, 2008. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including the risks that our vendors in China may not ship our products on the scheduled basis and that we will not have sufficient cash flow to finance our working capital needs in the remaining period of this fiscal year. In addition, 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
CONSOLIDATED BALANCE SHEETS

			December 31, 2008		March 31, 2008
			(Unaudited)		(Audited)
Assets
Current Assets
	Cash	$	1,799,151	$	447,816
	Accounts receivable, net of allowances of $357,166 and $120,899, respectively		4,276,329		1,961,721
	Due from factor		1,047,947		131,451
	Inventories,net		6,018,127		3,514,984
	Prepaid expenses and other current assets		396,046		412,552
	Total Current Assets		13,537,600		6,468,524

Property and Equipment, net			992,166		598,280
Other Non-Current Assets			178,320		169,362
	Total Assets	$	14,708,086	$	7,236,166

Liabilities and Shareholders' Equity
Current Liabilities
	Accounts payable	$	6,621,950	$	1,145,150
	Due to related parties - net		2,572,291		616,732
	Accrued expenses		596,538		409,415
	Current portion of long-term financing obligation		18,186		-
	Customer credits on account		579,966		778,993
	Deferred gross profit on estimated returns		479,097		217,812
	Total Current Liabilities		10,868,028		3,168,102

Long-term financing obligation, less current portion			28,795		-
	Total Liabilities		10,896,823		3,168,102

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;
	32,732,212 and 31,758,400 shares issued and outstanding		327,322		317,584
	Additional paid-in capital		18,647,264		18,430,612
	Accumulated deficit		(15,163,323)		(14,680,132)
	Total Shareholders' Equity		3,811,263		4,068,064
	Total Liabilities and Shareholders' Equity	$	14,708,086	$	7,236,166

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						For Nine Months Ended
		December 31, 2008			December 31, 2007			December 31, 2008			December 31, 2007


Net Sales		$	16,611,566		$	13,783,645		$	30,998,308		$	32,337,712

Cost of Goods Sold			12,839,723			10,037,091			25,002,865			25,058,976

Gross Profit			3,771,843			3,746,554			5,995,443			7,278,736

Operating Expenses
	Selling expenses		1,642,309			1,659,030			2,656,385			2,747,698
	General and administrative expenses		1,436,477			1,162,016			3,355,232			3,254,587
	Depreciation and amortization		121,604			104,629			326,264			228,815
Total Operating Expenses			3,200,390			2,925,675			6,337,881			6,231,100

Income (Loss) from Operations			571,453			820,879			(342,438	)		1,047,636

Other Expenses
	Gain from disposal of assets		-						-			3,159
	Interest expense		(71,670	)		(53,948	)		(104,671	)		(78,898	)

Income (Loss) before provision for income taxes			499,783			766,931			(447,109	)		971,897

Provision for income taxes			(36,082	)		-			(36,082	)		-

Net Income (Loss)		$	463,701		$	766,931		$	(483,191	)	$	971,897

Income (Loss) per Common Share
	Basic	$	0.01		$	0.03		$	(0.01	)	$	0.03
	Diluted	$	0.01		$	0.03		$	(0.01	)	$	0.03

Weighted Average Common and Common
	Equivalent Shares:
	Basic		32,729,990			30,806,019			32,472,073			29,677,218
	Diluted		32,729,990			30,962,269			32,472,073			30,029,981

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 Nine Months Ended
					December 31, 2008		December 31, 2007


Cash flows from operating activities
	Net (Loss) Income			$	(483,191)	$	971,897
	Adjustments to reconcile (net loss) net income to net cash and cash equivalents used in operating activities:
		Depreciation and amortization			326,264		200,136
		Change in inventory reserve			95,149		77,764
		Change in allowance for bad debts			236,267		102,131
		Stock compensation			28,890		34,471
		Deferred gross profit on estimated sales returns			261,285		273,688
	Changes in assets and liabilities:
	(Increase) Decrease in:
		Accounts receivable			(6,710,288)		(10,592,932)
		Inventories			(2,598,292)		(1,173,575)
		Prepaid expenses and other current assets			16,506		295,078
		Other non-current assets			(8,958)		2,722
	Increase (Decrease) in:
		Accounts payable			5,476,800		3,676,116
		Accounts payable - related party			2,449,709		1,187,130
		Accrued expenses			187,123		340,048
		Customer credits on account			(199,027)		(254,959)
			Net cash (used in) operating activities		(921,763)		(4,860,286)
Cash flows from investing activities
	Purchase of property and equipment				(720,150)		(373,533)
			Net cash used in investing activities		(720,150)		(373,533)
Cash flows from financing activities
	Borrowings from (retention by) factor, net				(916,496)		(220,577)
	Proceeds from issuance of stock				-		630,881
	Proceeds pursuant to factoring facility				4,159,414		-
	Net proceeds from long-term financing obligation				46,980		-
	Net loan (payments to) proceeds from related parties				(296,650)		4,590,894
			Net cash provided by financing activities		2,993,248		5,001,198
Change in cash and cash equivalents					1,351,335		(232,620)

Cash and cash equivalents at beginning of period					447,816		1,188,900
Cash and cash equivalents at end of period				$	1,799,151	$	956,280

Supplemental Disclosures of Cash Flow Information:
	Cash paid for Interest			$	103,183	$	78,898
	Cash paid for Income Taxes			$	36,802	$	-

Non-Cash Financing Activities:
	Conversion of trade payable to equity			$	197,500	$	300,000

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

The Singing Machine Company, Inc., Coconut Creek
Gary Atkinson, 954-596-1000
GaryAtkinson@singingmachine.com
www.singingmachine.com

(Source: Business Wire )

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