SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
0 - 24968
Commission File Number
THE SINGING MACHINE COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3795478
(State of Incorporation ) (IRS Employer I.D. No.)
3101 N.W. 25th Avenue, Pompano Beach, FL 33069
(Address of principal executive offices )
(954) 968-8006
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months ( or for such shorter
period that the registrant was required to file such reports ) and
( 2 ) has been subject to such filing requirements for the past 90
days. Yes No x .
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicated by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15
(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes No x .
APPLICABLE ONLY TO CORPORATE ISSUERS
There were 2,883,582 shares of Common Stock, $.01 par value,
issued and outstanding at September 30, 1997.
<PAGE>
THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1997
(Unaudited) and March 31, 1996.
Consolidated Statement of Operations - Three months
and six months ended September 30, 1997 and 1996
(Unaudited).
Consolidated Statement of Shareholders' Equity -
December 31, 1993 through September 30, 1997.
Consolidated Statement of Cash Flows - Six months
ended September 30, 1997 and 1996 (Unaudited).
Notes to Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security-Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
Item I. Financial Statements
<PAGE>
THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
September 30, March 31,
1997 1997
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 39,393 $ 10,222
Trade accounts receivable -
net of $80,000 allowance
for doubtful accounts 876 617 309,480
Accounts receivable -
related parties 24,429 31,178
Inventories - net 1,018 821 1,170,017
Prepaid expenses and
other assets 98,117 52,834
TOTAL CURRENT ASSETS 2,057,377 1,573,731
PROPERTY & EQUIPMENT - net of
accumulated depreciation of
$364,119 111,024 178,030
INTANGIBLE ASSETS:
Investments in song library
net of accumulated amortization
of $376,081 68,836 91,082
Total intangible assets 68,836 91,082
OTHER ASSETS 7,757 -
TOTAL ASSETS $2,244,994 $1,842,843
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, March 31,
1997 1997
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable $ 1,828,640 $ 1,097,487
Pre-petition Creditors 4,418,744 4,418,744
TOTAL CURRENT LIABILITIES 6,247,384 5,516,231
COMMISSIONS & CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value -
10,000,000 shares authorized,
2,883,582 issued and
outstanding at
September 30, 1997
and March 31, 1997 28,836 28,836
Additional paid in capital 5,844,448 5,844,448
Accumulated deficit (9,875,674) (9,546,672)
Total stockholders' equity (4,002,390) 3,673,388
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,244,994 $ 1,842,843
</TABLE>
See accompany notes to financial statements.
<PAGE>
THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
( Unaudited )
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Equipment sales, net $1,878,957 $4,345,078 $2,006,212 $5,434,360
Music sales, net 251,990 454,323 352,832 720,707
Commission income
- related party 1,702 55,145 4,443 69,164
Other 9,928 37,251 39,883 66,172
Total revenues 2,142,577 4,891,797 2,398,927 6,290,403
COSTS AND EXPENSES:
Cost of equipment sales 1,583,348 3,747,906 1,757,217 4,758,220
Cost of music sales 69,545 324,438 105,850 536,243
Other operating expenses 77,660 155,177 181,907 254,350
Selling general and
administrative expense 245,678 620,752 540,585 950,895
Depreciation and amortization 46,673 69,008 93,348 137,530
Total costs and expenses 2,022,904 4,917,281 2,678,907 6,637,228
Operating income ( loss ) 119,673 (25,485) (279,980) (346,835)
Other income ( expenses ):
Interest income 569 755 1,125 1,442
Interest expense (2,416) (12,944) (4,215) (76,711)
Factor fees (28,896) (41,020) (45,932) (65,908)
Total other expenses, net (30,743) (53,209) (49,022) (141,177)
Income ( loss ) before taxes
and extraordinary item 88,930 (78,694) (329,022) (488,012)
Extraordinary item, net of
income taxes:
Gain from debt extinguishment - 71,285 - 71,285
</TABLE>
THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Income (loss) before taxes $ 88,930 $ (7,409) $ (329,022) $ (416,727)
Net income (loss) $ 88,930 $ (7,409) $ (329,022) $ (416,727)
Net income (loss) per share $ 0.03 $ (0.00) $ (0.11) $ (0.15)
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 2,883,582 2,811,582 2,883,582 2,811,582
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
FROM MARCH 31, 1995 THROUGH SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Common Stock Additional
$.01 Par Value Paid-In Accumulated
Shares Amount Capital (Deficit) Total
<S> <C> <C> <C> <C> <C>
Balance - March 31, 1995 2,539,332 $ 25,393 $5,509,314 $(1,820,564) $3,714,143
Exercise of Bridge Warrants 272,250 2,723 317,855 - 320,578
Net loss for the period - - - (3,850,980) (3,850,980)
Balance - March 31, 1996 2,811,582 28,116 5,827,169 (5,671,544) 183,741
Issuance of Common Shares
for debt settlement 72,000 720 17,279 - 17,999
Net loss for the period - - - (3,875,128) (3,875,128)
Balance - March 31, 1997 2,883,582 28,836 5,844,448 (9,546,672) (3,672,388)
Balance - June 30, 1997 2,883,582 28,836 5,844,448 (9,964,604) (4,091,320)
Balance - September 30, 1997 2,883,582 $ 28,836 $ 5,844,448 $(9,875,674) $(4,002,390)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
( Unaudited )
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 25,846 $ 456,728 $ 40,778 $ 96,985
CASH FLOWS FROM
INVESTING ACTIVITIES:
Property & equipment - (3,141) - (3,038)
Additions to song library - - - (1)
Receivable from
related parties (569) (938) 6,749 (1,093)
Other assets (1,050) (13,505) (7,757) (1)
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (1,619) (17,584) (1,008) (4,133)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from notes payable - 85,040 - 492,732
Repayments of notes payable - (185,142) - (199,161)
Repayment of long term debt - (3,441) - (10,814)
NET CASH PROVIDED BY (USED)IN
FINANCING ACTIVITIES - (103,543) - 282,757
INCREASE (DECREASE) IN CASH 24,227 335,601 39,770 375,610
CASH AT BEGINNING OF PERIOD 15,166 40,122 (377) 113
CASH AT END OF PERIOD $ 39,393 $ 375,723 $ 39,393 $ 375,723
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTE 1 - CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The accompanying consolidated condensed financial
statements of the Company have been prepared in
accordance with the instructions to Form 10-QSB and,
therefore, omit or condense certain footnotes and other
information normally included in financial statements
prepared in accordance with generally accepted accounting
principles. It is suggested that these consolidated
condensed financial statements should be read in
conjunction with the Company's financial statements and
notes thereto included in the Company's audited
financial statements on Form 10-KSB for the fiscal year
ended March 31, 1997.
The accounting policies followed for interim financial
reporting are the same as those disclosed in Note 1 of
the Notes to Financial Statements included in the
Company's audited financial statements for the fiscal
year ended March 31, 1997 which are included in Form 10-
KSB.
In the opinion of management, all adjustments which are
of a normal recurring nature and considered necessary to
present fairly the financial positions, results of
operations, and cash flows for all periods presented have
been made.
The results of operations for the three month period
ended September 30, 1997 are not necessarily indicative
of the results that may be expected for the entire fiscal
year ending March 31, 1998.
The accompanying consolidated condensed financial
statements include the accounts of the Company and its
wholly-owned subsidiary. All significant inter company
balances and transactions have been eliminated. Assets
and liabilities of the foreign subsidiary are translated
at the rate of exchange in effect at the balance sheet
date; income and expenses are translated at the average
rates of exchange prevailing during the year. The
related translation adjustment is not material.
NOTE 2 -REORGANIZATION
On April 11, 1997, the Company filed a voluntary
bankruptcy petition for relief pursuant to 11 U.S.C.
Chapter 11 of the United States Bankruptcy Act. Under
Chapter 11, creditors are prohibited from taking actions
<PAGE>
against the Company without court approval while the
Debtor operates the Company and formulates a Plan of
Reorganization.
NOTE 3 - MAJOR CUSTOMERS
During the six months ended September 30, 1997 and 1996,
85.7% and 78.7%, respectively, of the Company's total
revenue were derived from net sales to its five largest
customers. Sales derived from customers who individually
purchased greater than 10% of total revenues were as
follows:
SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
J.C. Penney 19.2% 17.1%
Target 34.4% 48.1%
Fingerhut 10.6% -
Best Buy 14.3 -
Because of the seasonality of the Company's sales, these
results may be distorted due to historically low
percentage of overall sales during the Company's first
quarter.
NOTE 4 - SUBSEQUENT EVENTS
Since the Chapter 11 filing, the Company has made
considerable positive advancements. The Company has
reduced the size of its corporate offices and warehousing
operations with an emphasis on reduction of inventory.
Total combined operating space was reduced from 29,000 to
10,000 square feet, thereby reducing rental facility
expenses by $12,000 per month, and the Company's staff
has been reduced to the minimum needed to continue to
operate efficiently. The Company has also arranged with
Asiatech 52 Manufacturing Ltd. ("A-Tech") in Hong Kong
for 90 day document of acceptance ("DA") financing up to
$200,000.
With regard to the retention of the Company's customer
base, the major accounts, Target, J.C. Penney, Fingerhut,
and FAO Schwarz have continued to purchase products from
the Company. In addition, the Company began a new
customer relationship with Best Buy, which had shipments
exceeding $1,000,000 during the fiscal 1998 selling
season.
<PAGE>
NOTE 4 - SUBSEQUENT EVENTS (Cont'd)
The Company filed motion with the Bankruptcy Court, which
was approved, regarding the treatment of the Harry Fox
Agency in the plan. The Harry Fox Agency, Inc. ("HFA")
is the Company's principal copyright royalty creditor to
whom the company owes approximately $820,000, including
royalties on the Company's current inventory. These
royalties were governed by the terms of a prior
settlement agreement and collateralized by the Company's
master song recordings. In the agreement, HFA agreed to
amend its proof of claim and to reflect this $820,000 as
general unsecured debt and further, to elect to accept
issuance of shares of the recognized Company on the
following basis: for each $2.00 of debt, HFA will receive
one share of common stock or approximately 410,000
shares.
On February 9, 1998, the Bankruptcy Court granted the
Company's motion to approve a settlement agreement
entered into on December 24,1997, between the Company and
Eugene Settler ("Settler"), a shareholder as well as
former officer and director of the Company. Prior to
this settlement agreement, there was pending in the
Bankruptcy Court an adversary proceeding brought by the
Company against Settler, for recovery of certain alleged
preferential transfers arising from certain payments made
to Settler as a result of legal proceedings brought by
Settler against the Company for wrongful termination. The
parties mediated the dispute and reached a settlement
which resolves the adversary proceeding, certain
alleged claims by Settler against the Company and others,
and provides for an exchange of releases amongst all
parties. Under the terms of agreement, Settler also
resigned as a director of the Company and assigned all of
his stock certificates and options to Colony Electronics.
This settlement did not require the payment of any funds
by the Company other than a portion of the mediation
costs incurred.
The Bankruptcy court approved the Plan of Reorganization
on February 26, 1998. The significant elements of the
plan include (i) additional estimated administrative
costs of $116,000 for the company's bankruptcy counsel,
(ii) the secured claim by Bankers Capital, the Company's
factor, of $106,000 shall be paid according to the terms
of its contract with the Company, which is current, (iii)
general unsecured creditors whose claims are equal to or
<PAGE>
NOTE 4 - SUBSEQUENT EVENTS (Cont'd)
less than $300 shall receive a cash payment of 10% of the
amount of their allowed claim, and (iv) general unsecured
creditors whose claim exceed $300 were given the option
of receiving a cash payment of 10% of the amount of their
allowed claim or receiving one share of new common stock
in the reorganized company for each $2.00 of an allowed
claim. Over 90% of the general unsecured creditors chose
shares of stock in the reorganized company. This
resulted in a significant transfer of the Company's
debt to equity on the Company's post reorganization
balance sheet. Any cash payments to unsecured creditors
would be paid in two equal installments ten days after
the Plan is confirmed and six months thereafter. Holders
of existing common shares of the Company, equity interest
holders, will have their interest diluted by ninety
percent (90%) at confirmation under the Plan, so that for
each ten shares of common stock owed they will receive
one share of new common stock in the reorganized
company.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The analysis of the Company's financial condition,
liquidity, capital resources, and results of operations
should be reviewed in conjunction with the accompanying
financial statements, including the notes thereto.
General
The Singing Machine Company Inc., incorporated in
Delaware in 1994, together with its wholly owned
subsidiary, International (SMC) HK, Ltd. (hereafter
referred to as the "Company"), engages in the production
and distribution of karaoke audio software and electronic
recording equipment.
The Company's electronic recording and playback products
are marketed under The Singing Machine or Memorex
trademarks. The Company's audio software is marketed
under the trademark Karaoke Kassette , Karaoke Kompact
Disc and Karaoke Video kassette . The Company's
products are sold throughout the United States, primarily
through department stores, lifestyle merchants, mass
merchandisers, direct mail catalogs and showrooms, music
and record stores, national chains, specialty stores and
warehouse clubs.
The Company's karaoke machines and karaoke software are
currently sold in such retail outlets as Target, Best
Buy, J.C. Penney and Fingerhut.
On October 27, 1995 the Company signed an exclusive five
(5) year sub-distribution agreement with Memcorp, Inc. a
Florida company holding rights to MEMOREX, a registered
trademark name. Under the agreement the Company became
the exclusive sub-distributor of karaoke hardware
products under "Memorex" trademark.
The Company continues to post losses. For the first
quarter of fiscal 1998, the Company lost approximately
($418,000). The Company's working capital deficit as of
June 30,1997 was approximately $4.3 million. As a result
of historical losses, a net working capital deficiency
and lack of financing, the Company's auditors expressed
substantial doubt about the Company's ability to continue
as a going concern based on their audit of the Company's
financial statements for the fiscal year ended March 31,
1997. See "Result of Operations", "Liquidity and Capital
Resources" and "Going Concern", for the fiscal quarter
ended September 30, 1997 for further information.
Strategy
Currently the Company is focusing on its audio equipment
<PAGE>
operations with the intention of increasing cash flow,
improving operating efficiency, increasing internal
growth and returning to profitability. The Company's
intent is to obtain additional market share through an
emphasis on the affordability, selection, and quality of
its products. The Company is also focusing greater sales
efforts on mass market retailers, such as Target, J.C.
Penney and Best Buy, which the Company believes have
greater potential for increased software sales. The
Company has historically sold its software products
predominately to chain music stores and music
distributors and believes that potential in this market
has decreased. In order to reduce expenses, management
has limited the development of new products for both
audio equipment and audio software. There can be no
assurance that the Company will be able to successfully
implement its strategy.
RESULTS OF OPERATIONS - THREE MONTHS AND SIX MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
REVENUES
Total revenues decreased by approximately $2,749,000 or
56% during the second quarter of fiscal 1998 compared to
the second quarter of fiscal 1997. The decrease in
revenue is primarily a result of decreases in equipment
and software sales and high rate of returns.
Revenues from equipment sales decreased 57% to
approximately $1,879,000 for the second quarter of
fiscal 1998 compared to $4,345,078 for the second quarter
of fiscal 1997. The decrease in equipment sales was
primarily a result of the reduction of the Company's
existing inventory and the inability of the Company to
obtain new financing to purchase new inventory in the
Chapter 11 reorganization.
Revenues from music sales declined by 45% to
approximately $252,000 for the second quarter of fiscal
1998 compared to $454,000 for the second quarter of
fiscal 1997. Commissions and other income decreased
approximately $81,000 to $11,000 for the second quarter
of fiscal 1998 compared to the second quarter of fiscal
1997. The decrease reflects lower commission income from
a related party, primarily due to International's
increased business operations in Hong Kong, reflecting
lower licensing fees
GROSS PROFIT
Gross profit from equipment and music sales decreased
approximately $302,000 to $296,000 or 15.8% for the
second quarter of fiscal 1998, compared to $597,000 or
13.7% for the second quarter of fiscal 1997. The decrease
<PAGE>
in gross profit was primarily a result of the reduction
of the Company's existing inventory and the inability of
the Company to obtain new financing to purchase new
inventory in the Chapter 11 reorganization.
OTHER OPERATING EXPENSES
Other operating expenses decreased approximately $78,000,
or 50% during the second quarter of fiscal 1998 compared
to the same period a year ago, The decrease is primarily
due to a reduction in staff and moving to a small
facility.
SELLING, GENERAL ADMINISTRATIVE EXPENSES
Selling, general & administrative expenses decreased
approximately $375,000 or 60%, during the second quarter
of fiscal 1998 compared to the second quarter of fiscal
1997. The decrease is primarily due to a reduction of
staff and moving to smaller office and warehousing
operations during the second quarter of fiscal 1998. Also
during the first six months of fiscal 1997 the Company
incurred $118,100 for administration of the Company's
subsidiary in Hong Kong. This cost was incurred in cost
of sales during the first six months of fiscal 1998.
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expense decreased
approximately $22,000 or 32% to $46,700 for the second
quarter of fiscal 1998 compared to the $69,000 recorded
last year. The decrease is primarily the result of the
write off of the costs of trademarks no longer used, cost
in excess of net assets (goodwill) and the write-down
of the song library due to the reorganization filing.
OTHER EXPENSES
Net interest expense decreased approximately $10,000 or
85%, during the second quarter of fiscal 1998 compared to
the same period year ago. The decrease is primarily the
result of a stay of interest during the first six months
of 1998 due to the chapter 11 bankruptcy filing.
Loss on sales of accounts receivable was 1.3% and 0.8% of
total revenues during the first quarter of fiscal 1998
and 1997 respectively. The loss decreased $12,000 to
$28,900, compared to the $41,000 recorded last year
primarily due to a lower amount of receivables factored
during the second quarter of fiscal 1998.
SEASONALITY AND QUARTERLY RESULTS
Historically, the Company's operations have been
seasonal, with the highest net sales occurring in the
<PAGE>
second and third quarters (reflecting increased orders
for equipment and music merchandise during the Christmas
selling months) and to a lesser extent the first and
fourth quarters of the fiscal year.
The company's results of operations may also fluctuate
from quarter to quarter as a result of the amount and
timing of orders placed and shipped to customers, as well
as other factors. The fulfillment of orders can therefore
significantly affect results of operations on a quarter-
to-quarter basis.
FINANCIAL CONDITION
At September 30, 1997, the Company had current assets of
$2,057,377, compared to $1,573,731 at March 31, 1997;
total assets of $2,244,994 as compared to $1,842,843 at
March 31, 1997; current liabilities of $6,247,384 as
compared to $5,516,231 at March 31, 1997, and a current
net worth of $2,244,994 as compared to $1,842,843 at
March 31, 1997. (See "Financial Statements"). The
decrease in total assets and net worth are principally
due to the net loss incurred for the period.
LIQUIDITY AND CAPITAL RESOURCES
There was a working capital deficiency of approximately
$4.2 million, as of September 30, 1997 compared to a
working capital deficit of $2.7 million a year ago. The
Company continues to suffer from a lack of liquidity and
capital resources which have affected its ability to
conduct business in a profitable manner. The Company has
made a considerable effort to sell to its customers FOB
Hong Kong using letter of credit which reduces Its
reliance upon funding for inventory.
The Company is a party to a factoring agreement, dated
September 5, 1997, with Bankers Capital ("Bankers"), a
division of Bankers Leasing Associations, Inc., pursuant
to which Bankers purchases certain of the Company's
accounts receivable. Under the agreement, Bankers
purchases certain selected accounts receivable from the
Company and advances 50% of the face amount of those
receivables to the Company. Bankers retains discretion to
determine which of the Company's accounts receivable
it will purchase. The agreement with Bankers expires on
June 5, 1998.
In addition to Bankers Capital the Company has contracted
effective February, 1998 with Asia-Tech Manufacturing to
act as the Company's agent in Hong Kong. For a
commission of 5% of the manufacturing cost of all FOB
Hong Kong orders. Asia-Tech will coordinate and expedite
orders and shipments for the Company as well as expedite
the negotiation of letters of credit on behalf of the
Company. As part of the agency agreement, Asia-Tech will
provide a $200,000 line of credit for the purchase of
inventory.
<PAGE>
Although the company is currently engaged in negotiations
with regard to securing third-party financing to replace
or augment the financing in place, there can be no
assurance that such financing will be available on terms
satisfactory to the Company or at all.
GOING CONCERN
The report of the Company's independent auditors on its
1997 financial statements express substantial doubt about
the company's ability to continue as a going concern. The
independent auditors attributed this substantial doubt to
substantial net operating losses in the fiscal year ended
March 31, 1997 and an accumulated deficit of
approximately $10.0 million. The auditors have further
noted that the Company experienced a substantial decline
in sales. The Company is currently dependent on the
financing provided by Asia-Tech & Bankers Capital to
allow it to make inventory purchases in advance of the
peak holiday selling season. The Company does not have
a dedicated line of credit in place to finance its
seasonal needs for inventory purchases. The
discontinuance of financing currently in place could
result in the Company being forced to curtail its
operations. The financial statements do not include
adjustments relating to the recoverability and
classification of the recorded carrying value of assets
or the amounts or classifications of other liabilities
that might be necessary should the Company be unable to
successfully negotiate additional inventory financing and
continue as a going concern.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) There are no exhibits to this report.
(b) There were no reports on Form 8- K filed during the
quarter.
<PAGE>
THE SINGING MACHINE COMPANY, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
The Singing Machine
Company, Inc.
By:/s/ Edward Steele
Edward Steele
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Balance
sheet, Statement of Operations, Statements of Cash Flows and Notes thereto
incorporated in Part I, Item 1. of this Form 10-QSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 39,393
<SECURITIES> 0
<RECEIVABLES> 981,046
<ALLOWANCES> 80,000
<INVENTORY> 1,018,821
<CURRENT-ASSETS> 2,057,377
<PP&E> 475,143
<DEPRECIATION> 364,119
<TOTAL-ASSETS> 2,244,994
<CURRENT-LIABILITIES> 6,247,384
<BONDS> 0
0
0
<COMMON> 28,836
<OTHER-SE> (4,031,226)
<TOTAL-LIABILITY-AND-EQUITY> 2,244,994
<SALES> 2,130,947
<TOTAL-REVENUES> 2,142,577
<CGS> 1,652,893
<TOTAL-COSTS> 2,022,904
<OTHER-EXPENSES> 31,312
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,416
<INCOME-PRETAX> 88,930
<INCOME-TAX> 0
<INCOME-CONTINUING> 88,930
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88,930
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>