Singing Machine Announces 3rd Quarter Earnings Release

Singing Machine Announces 3rd Quarter Earnings Release

COCONUT CREEK, Fla., Feb. 12 /PRNewswire-FirstCall/ -- The Singing Machine Company, Inc. ("Singing Machine" or the "Company") (BULLETIN BOARD: SMDM) today announced financial results for its third fiscal quarter ended December 31, 2009. The Company reported approximately $11.9 million in net sales for the third quarter, representing a decrease of approximately $4.6 million over the same period last year. The decrease in sales is primarily due to continued economic concerns and excess inventory left over with customers from last year.

The Company reported $247,309 in net income, down $216,392 from last year's third quarter net income of $463,701. The decrease in net income is primarily due to the decrease in sales. However, the Company did report an increase in gross profit margin from 22.7% to 25% as compared to the same period last year. The Company was also successful in lowering operating expenses by approximately $500,000 as compared to the same quarter last year. The decrease in operating expenses is primarily due to a decrease in general and administrative expenses caused by payroll reductions and budget cuts. The Company has also made significant strides toward lowering and managing inventory, reporting approximately $3.6 million in inventory at the end of the quarter, as compared to inventory of $4.7 million at the end of the fiscal year 2009.

"While the financials do not necessarily reflect it, Singing Machine had a positive holiday season with very strong sell-through reported by all of our retail partners," commented Gary Atkinson, Interim CEO. "Last year at this time, amid the peak of the recession, many of our customers finished their season with excess inventory, which burdened the Company going into the start of this fiscal year. For fiscal year 2011 the Company hopes to start with a much cleaner slate. In addition, the strong sell-through this year tells us the karaoke category is still alive and that there is an avid demand for music and singing." Atkinson furthered, "Looking forward to the next fiscal year, the Company recently finished a very optimistic and successful showing at the Consumer Electronics Show where it met with many large retail customers and unveiled some new, exciting projects."

Atkinson also commented on the recently launched karaoke music download store, "During this third quarter, the Company saw an impressive increase in traffic and high conversion rate for music downloads, signifying that there is willingness and a demand for downloadable karaoke music.

However, despite these positive things, we know the Company still has tremendous strides it must take to achieve profitability. The Company will continue to look for ways to reduce overhead, better manage its current accounts, and reach new retail distribution."

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 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, 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.

(Financial statements attached)

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

December 31, March 31,
2009 2009
---- ----
(Unaudited) (Audited)

Assets
------
Current Assets
Cash $1,777,340 $957,163
Accounts receivable, net of allowances of
$289,659 and $261,980, respectively 2,677,848 972,345
Due from factor 280,484 73,854
Inventories, net 3,588,653 4,729,667
Prepaid expenses and other current assets 400,997 526,563
------- -------

Total Current Assets 8,725,322 7,259,592

Property and equipment, net 778,323 886,770
Other non-current assets 179,751 179,362
------- -------

Total Assets $9,683,396 $8,325,724
========== ==========

Liabilities and Shareholders' Equity
------------------------------------
Current Liabilities
Accounts payable $2,733,828 $2,588,769
Due to related parties, net 3,353,258 1,498,391
Accrued expenses 627,140 422,260
Short-term loan - bank 1,092,323 -
Current portion of long-term
financing obligation 18,186 18,186
Customer credits on account 526,948 908,449
Deferred gross profit on estimated
returns 351,940 288,039
------- -------
Total Current Liabilities 8,703,623 5,724,094

Long-term financing obligation, less
current portion 10,609 22,733
------ ------
Total Liabilities 8,714,232 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 19,084,721 19,075,750
Accumulated deficit (18,490,051) (16,871,347)
----------- -----------
Total Shareholders' Equity 969,164 2,578,897
----------- -----------
Total Liabilities and Shareholders'
Equity $9,683,396 $8,325,724
========== ==========

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, December 31, December 31, December 31,
------------ ------------ ------------ ------------
2009 2008 2009 2008
---- ---- ---- ----

Net Sales $11,975,761 $16,611,566 $19,781,141 $30,998,308

Cost of Goods
Sold 8,981,999 12,839,723 15,689,397 25,002,865
---------- ---------- ---------- ----------

Gross Profit 2,993,762 3,771,843 4,091,744 5,995,443
Operating Expenses
Selling
expenses 1,708,663 1,642,309 2,648,835 2,656,385
General and
administrative
expenses 875,864 1,436,477 2,666,471 3,355,232
Depreciation and
amortization 120,682 121,604 322,947 326,264
---------- ---------- ---------- ----------
Total Operating
Expenses 2,705,209 3,200,390 5,638,253 6,337,881
---------- ---------- ---------- ----------
Income (Loss)
from
Operations 288,553 571,453 (1,546,509) (342,438)

Other Expenses
Interest
expense (41,244) (71,670) (72,195) (104,671)
---------- ---------- ---------- ----------
Income (Loss)
before provision
for income taxes 247,309 499,783 (1,618,704) (447,109)

Provision for
income taxes (36,082) (36,082)
---------- ---------- ---------- ----------
Net Income
(Loss) $247,309 $463,701 $(1,618,704) $(483,191)
========== ========== ============ ===========

Net Income (Loss)
per Common Share
Basic and
Diluted $0.01 $0.01 $(0.04) $(0.01)

Weighted Average Common and
Common Equivalent Shares:
Basic and
Diluted 37,449,432 32,729,990 37,449,432 32,472,073

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, 2009 December 31, 2008
----------------- -----------------

Cash flows from operating activities
Net Loss $(1,618,704) $(483,191)
Adjustments to reconcile net
loss to net cash and cash
equivalents used in
operating activities:
Depreciation and
amortization 322,947 326,264
Inventory reserve charge 91,330 95,149
Change in allowance for
bad debts 27,679 236,267
Stock based compensation 8,971 28,890
Deferred gross profit on
estimated sales returns 63,901 261,285
Changes in assets and
liabilities:
(Increase) Decrease in:
Accounts receivable (3,502,013) (6,710,288)
Inventories 1,049,684 (2,598,292)
Prepaid expenses and other
current assets 125,566 16,506
Other non-current assets (388) (8,958)
Increase
(Decrease) in:
Accounts payable 145,059 5,476,800
Accounts payable - related
party 1,558,187 2,449,709
Accrued expenses 204,880 187,123
Customer credits on
account (381,501) (199,027)
-------- --------
Net cash used in
operating activities (1,904,402) (921,763)
---------- --------
Cash flows from investing activities
Purchase of property
and equipment (216,148) (720,150)
Disposal of property and
equipment 1,648 -
----- ---
Net cash used in
investing activities (214,500) (720,150)
-------- --------
Cash flows from financing
activities
Borrowings from factor, net (206,630) (916,496)
Net proceeds pursuant to
factoring facility 1,768,830 4,159,414
Net proceeds from
short-term bank loan 1,092,323 -
Payments on long-term
financing obligation (12,124) 46,980
Net loan proceeds
from related parties 296,680 (296,650)
------- --------
Net cash provided by
financing activities 2,939,079 2,993,248
--------- ---------
Change in cash and cash
equivalents 820,177 1,351,335

Cash and cash equivalents at
beginning of period 957,163 447,816
------- -------
Cash and cash equivalents at
end of period $1,777,340 $1,799,151
========== ==========

Supplemental Disclosures of
Cash Flow Information:

Cash paid for Interest $72,195 $103,183
======== ========
Cash paid for Income Taxes - 36,802
=== ======
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.

CONTACT: Gary Atkinson, +1-954-596-1000, GaryAtkinson at
singingmachine.com

Web Site: http://www.singingmachine.com/

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