SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, For Use of the Commission Only (As Permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
THE SINGING MACHINE COMPANY, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
THE SINGING MACHINE COMPANY, INC.
6601 Lyons Road, Building A-7
Coconut Creek, Florida 33073
(954) 596-1000
December 20, 2005
To Our Stockholders:
I am pleased to invite you to attend the Annual Meeting of Stockholders
of The Singing Machine Company, Inc. (the "Company") to be held on Tuesday,
January 17, 2006 at 9:00 a.m. at the Company's executive offices located at 6601
Lyons Road, Building A-7, Coconut Creek, Florida 33073.
Details regarding admission to the meeting and the business to be
conducted are more fully described in the accompanying Notice of Annual Meeting
and Proxy Statement.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the Annual
Meeting in person, you are requested to complete, date, sign and return the
enclosed proxy card in the enclosed envelope which requires no postage if mailed
in the United States. Instructions on the proxy card will tell you how to vote
by returning your proxy card by mail. If you attend the Annual Meeting, you may
vote in person if you wish, even if you previously returned your proxy card.
We appreciate your support and continued interest in the Company.
Sincerely,
/s/ Yi Ping Chan
-------------------------------
Yi Ping Chan
Interim Chief Executive Officer
2
THE SINGING MACHINE COMPANY, INC.
6601 Lyons Road, Bldg. A-7
Coconut Creek, Florida 33073
(954) 596-1000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Our Stockholders:
Our Annual Meeting of Stockholders will be held on Tuesday, January 17,
2006 at 9:00 a.m. at the Company's executive offices which are located at 6601
Lyons Road, Bldg. A-7, Coconut Creek, Florida 33073.
The agenda of the meeting includes the following:
1. To elect six directors to serve until the next Annual Meeting of
Shareholders and until their successors shall be elected and qualified (Proposal
No. 1);
2. To approve an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of common stock, par
value $0.01 per share, from 18,900,000 to 100,000,000 shares (Proposal No. 2);
3. To ratify the appointment of Berkovits, Lago & Company, LLP, as the
Company's independent certified public accountants for the fiscal year ending
March 31, 2006 (Proposal No. 3); and
4. To consider and transact such other business as may properly come
before the Annual Meeting.
Only shareholders of record at the close of business on December 19,
2005 are entitled to notice of and to vote at the Annual Meeting or any
postponements or adjournments thereof.
These proposals are fully set forth in the accompanying Proxy
Statement, which you are urged to read thoroughly. For the reasons set forth in
the Proxy Statement, your Board of Directors recommends a vote "FOR" each of the
proposals. The Company intends to mail the Annual Report, Proxy Statement and
Proxy Card enclosed with this notice on or about December 20, 2005, to all
stockholders entitled to vote at the Annual Meeting. If you were a stockholder
of record of the Company's common stock (AMEX: SMD) on December 19, 2005, the
record date for the Annual Meeting, you are entitled to vote at the meeting and
any postponements or adjournments of the meeting. Shareholders are cordially
invited to attend the Annual Meeting. However, whether or not you plan to attend
the meeting in person, your shares should be represented and voted. After
reading the enclosed Proxy Statement, please sign, date, and return promptly the
enclosed proxy card in the accompanying postpaid envelope we have provided for
your convenience to ensure that your shares will be represented. If you do
attend the meeting and wish to vote your shares personally, you may revoke your
Proxy. If you attend the Annual Meeting, you may vote in person if you wish,
even if you previously returned your proxy card.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE AND IN FAVOR
OF EACH PROPOSAL SET FORTH ABOVE.
By Order of the Board of Directors
/s/ Yi Ping Chan
----------------------------------
Yi Ping Chan
Interim Chief Executive Officer
Coconut Creek, Florida
December 20, 2005
3
TABLE OF CONTENTS
Page
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING................................5
Purpose of the Annual Meeting...............................................5
Outstanding Securities and Voting Rights....................................5
Proxy Voting................................................................5
Attendance and Voting at the Annual Meeting.................................6
Revocation..................................................................6
Vote Required to Approve Each Proposal......................................6
MANAGEMENT.....................................................................6
CORPORATE GOVERNANCE AND RELATED MATTERS.......................................7
Board Committees and Meetings...............................................7
Board Committees............................................................8
Director's Compensation.....................................................9
INFORMATION ABOUT THE EXECUTIVE OFFICERS.......................................9
Executive Compensation......................................................9
Report of the Executive Compensation/Stock Option Committee on
Executive Compensation...................................................13
Security Ownership of Certain Beneficial Owners and Management ............14
Certain Relationships and Related Transactions.............................15
Audit Committee Report.....................................................16
DISCUSSION OF PROPOSAL ITEMS RECOMMENDED BY THE BOARD.........................17
ITEM 1--ELECTION OF DIRECTORS..............................................17
ITEM 2--INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK ..........18
ITEM 3--RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS ...........19
ANNUAL REPORT ON FORM 10-K ...................................................20
STOCKHOLDERS SHARING THE SAME LAST NAME AND ADDRESS...........................20
INFORMATION CONCERNING SHAREHOLDER PROPOSALS..................................20
PROXY SOLICITATION COSTS......................................................20
OTHER MATTERS.................................................................20
IMPORTANT: Please SIGN, DATE, and RETURN the enclosed Proxy Card immediately
whether or not you plan to attend the Annual Meeting. A return envelope, which
requires no postage if mailed in the United States, is enclosed for your
convenience.
4
THE SINGING MACHINE COMPANY, INC.
6601 Lyons Road, Bldg. A-7
Coconut Creek, Florida 33073
(954) 596-1000
-------------------------------------
PROXY STATEMENT
-------------------------------------
FOR ANNUAL MEETING
OF SHAREHOLDERS
To Be Held January 17, 2006
General
We are providing these proxy materials in connection with the
solicitation by the Board of Directors of The Singing Machine Company, Inc. of
proxies to be voted at our fiscal 2006 Annual Meeting of Shareholders, and at
any postponement or adjournment of this meeting. Our Annual Meeting will be held
on January 17, 2006 at our executive offices which are located at 6601 Lyons
Road, Bldg. A-7, Coconut Creek, Florida 33073. In this proxy statement, The
Singing Machine Company, Inc. is referred to as the "Company," "we," "our" or
"us."
Our principal executive offices are located at 6601 Lyons Road, Bldg.
A-7, Coconut Creek, Florida 33073. Our proxy statement and the accompanying
proxy card are first being mailed to our shareholders on or about December 20,
2005.
Purpose of the Annual Meeting
At our Annual Meeting, stockholders will act upon the matters outlined
in the Notice of Annual Meeting on the cover page of this Proxy Statement,
including the election of directors, the amendment to our Certificate of
Incorporation to increase the number of authorized shares of common stock, par
value $0.01 per share, from 18,900,000 to 100,000,000 shares, and ratification
of the appointment of our independent auditors. In addition, management will
report on the performance of the Company during fiscal year 2005 and respond to
questions from stockholders.
Outstanding Securities and Voting Rights
Only holders of record of our common stock at the close of business on
December 19, 2005, the record date, will be entitled to notice of, and to vote
at the Annual Meeting. On that date, we had 10,060,282 shares of common stock
outstanding. Each share of common stock is entitled to one vote at the Annual
Meeting.
A majority of the outstanding shares of common stock present in person
or represented by proxy constitutes a quorum for the transaction of business at
the Annual Meeting. As noted above, as of the record date, 10,060,282 shares of
our common stock, representing the same number of votes, were outstanding. Thus,
the presence of the holders of common stock representing at least 5,030,142
votes will be required to establish a quorum. Abstentions and broker "non-votes"
are counted as present and entitled to vote for purposes of determining whether
a quorum exists. A broker "non-vote" occurs when a nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee does
not have discretionary voting power with respect to that item and has not
received voting instructions from the beneficial owner.
In tabulating the voting results for any proposal, shares that
constitute broker "non-votes" are not considered entitled to vote on that
proposal. Thus, broker "non-votes" will not affect the outcome of any matter
being voted on at the meeting assuming a quorum is obtained. Abstentions will
have the same effect as a vote against a proposal.
Proxy Voting
Shares for which proxy cards are properly executed and returned will be
voted at the Annual Meeting in accordance with the directions given or, in the
absence of directions, will be voted "FOR" Proposal 1 - the election of each of
the nominees to the Board named herein, "FOR" Proposal 2 - the amendment to our
Certificate of Incorporation to increase the number of authorized shares common
stock, par value $0.01 per share, from 18,900,000 to 100,000,000 shares and
"FOR" Proposal 3 - the ratification of Berkovits, Lago and Company, LLP as our
independent certified public accountants for the fiscal year ending March 31,
2006. If however, other matters are properly presented, the person named in the
proxies in the accompanying proxy card will vote in accordance with their
discretion with respect to such matters.
Because many of our stockholders are unable to personally attend the
Annual Meeting, the Board of Directors of the Company solicits the enclosed
proxy so that each stockholder is given an opportunity to vote. This proxy
enables each stockholder to vote on all matters which are scheduled to come
before the meeting. When the Proxy Card is returned and properly executed, the
stockholder's shares will be voted according to the stockholder's directions.
Stockholders are urged to specify their choices by marking the appropriate boxes
on the enclosed Proxy card.
5
The manner in which your shares may be voted depends on how your shares
are held. If you own shares of record, meaning that your shares of common stock
are represented by certificates in your name so that you appear as a stockholder
on the records of our transfer agent, Continental Stock Transfer & Trust
Company, a proxy card for voting those shares will be included within this Proxy
Statement. You may vote those shares by completing, signing and returning the
proxy card in the enclosed envelope.
If you own shares in street name, meaning that your shares of common
stock are held by a bank or brokerage firm, you may instead receive a voting
instruction form with this Proxy Statement that you may use to instruct your
bank or brokerage firm how to vote your shares. As with a proxy card, you may
vote your shares by completing, signing and returning the voting instruction
form in the envelope provided.
All votes will be tabulated by the Inspector of Elections appointed for
the Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. A list of the stockholders entitled to vote at
the Annual Meeting will be available at the Company's office located at 6601
Lyons Road, Bldg. A-7, Coconut Creek, Florida 33073, for a period of ten (10)
days prior to the Annual Meeting for examination by any stockholder.
Attendance and Voting at the Annual Meeting
If you own common stock of record, you may attend the Annual Meeting
and vote in person, regardless of whether you have previously voted by proxy
card. If you own common stock in street name, you may attend the Annual Meeting
but in order to vote your shares at the meeting, you must obtain a "legal proxy"
from the bank or brokerage firm that holds your shares. You should contact your
bank or brokerage account representative to learn how to obtain a legal proxy.
We encourage you to vote your shares in advance of the Annual Meeting by one of
the methods described above, even if you plan on attending the Annual Meeting.
If you have already voted prior to the meeting, you may nevertheless change or
revoke your vote at the Annual Meeting in the manner described below.
Revocation
If you own common stock of record, you may revoke a previously granted
proxy at any time before it is voted by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the Annual Meeting and voting in person. Any stockholder
owning common stock in street name may change or revoke previously granted
voting instructions by contacting the bank or brokerage firm holding the shares
or by obtaining a legal proxy from such bank or brokerage firm and voting in
person at the Annual Meeting.
Vote required to approve each proposal
The election of the directors of the Company requires the affirmative
vote of a plurality of the votes cast by stockholders at the Annual Meeting. A
properly executed Proxy marked "WITHOLD AUTHORITY" with respect to the election
of one or more directors will not be voted with respect to the director or
directors indicated, although it will be counted for the purposes of determining
whether there is a quorum.
Adopting the amendment to our Certificate of Incorporation to increase
the number of authorized shares of common stock, par value $0.01 per share, from
18,900,000 to 100,000,000 shares and ratification of the appointment of
Berkovits, Lago and Company, LLP as the Company's independent auditors for
fiscal year 2006, will each require the affirmative vote of the holders of at
least a majority of the shares of common stock present in person or represented
by proxy and entitled to vote at the Annual Meeting.
MANAGEMENT
The following table sets forth certain information with respect to our
executive officers and directors as of December 20, 2005:
NAME AGE POSITION
- ---- --- --------
Yi Ping Chan 41 Interim Chief Executive Officer, Chief
Operating Officer, Secretary and Director
Danny Zheng 36 Chief Financial Officer
Josef A. Bauer 66 Director
Bernard Appel 73 Director
Harvey Judkowitz 60 Director
Marc Goldberg 61 Director
Steward Merkin 62 Director
Yi Ping Chan has served as our Chief Operating Officer from May 2, 2003
and as our Interim Chief Executive Officer since October 17, 2003. Prior to this
appointment, Chan was a consultant to Singing Machine. Mr. Chan was a founder
and general partner of MaxValue Capital Ltd., a Hong Kong-based management
consulting and investment firm, and co-founder and director of E Technologies
Ltd., Hong Kong, which specialized in health care technology transfer from April
1996 to June 2002. Prior to that, he was Chief Strategist and Interim CFO from
January 2000 to June 2002 of a Hong Kong-based IT and business process
consulting firm with operations in Hong Kong, China and the US. He also held a
senior management position with a Hong Kong-based venture capital and technology
holding company with operations in Hong Kong, China and the US. He also worked
as a business development analyst for Allied Signal Inc. (now part of Honeywell
Corp.) specializing in joint ventures and acquisitions in Japan and China. He
also worked as an engineer for International Business Machine Corp. in the USA.
Mr. Chan earned an MBA in 1994 and a MSEE in 1990 from Columbia University and a
BSEE with Magna Cum Laude in 1987 from Polytechnic University, New York.
6
Danny Zheng has been part of the Singing Machine management team since
April 2004 and has served as Chief Financial Officer since April 5, 2005. Danny
is a Certified Public Accountant licensed by the state of Delaware. He has more
than 10 years of hands-on controllership experience. He held controller and VP
finance positions with various private and public companies. Previously, he had
been employed by a New York regional CPA firm as a tax consultant for 4 years.
Danny also served as general manager from 1999 to 2002 for PC Ware International
Miami branch, a Taiwan based computer manufacturer. He was responsible for its
distribution, marketing and finance operation in six countries throughout Latin
America. He also served as director of operations for PC Micro, a joint venture
computer manufacturer in Manaus, Brazil from 1999 to 2002. Danny earned a B.S.
degree in accounting from Nankai University in China.
Josef A. Bauer has served as a director from October 15, 1999. Mr.
Bauer previously served as a director of the Singing Machine from February 1990
until September 1991 and from February 1995 until July 1997, when we began our
Chapter 11 proceeding. Mr. Bauer presently serves as the Chief Executive Officer
of the following three companies: Banisa Corporation, a privately owned
investment company, since 1975; Trianon, a jewelry manufacturing and retail
sales company since 1978 and Seamon Schepps, also a jewelry manufacturing and
retail sales company since 1999.
Bernard S. Appel has served as a director since October 31, 2003. He
spent 34 years at Radio Shack, beginning in 1959. At Radio Shack, he held
several key merchandising and marketing positions and was promoted to the
positions of President in 1984 and to Chairman of Radio Shack and Senior Vice
President of Tandy Corporation in 1992. Since 1993 through the present date, Mr.
Appel has operated the private consulting firm of Appel Associates, providing
companies with merchandising, marketing and distribution strategies, creative
line development and domestic and international procurement.
Harvey Judkowitz has served as a director since March 29, 2004 and is
the Chairman of our Audit Committee. He is licensed as a Certified Public
Accountant in New York and Florida. From 1988 to the present date, Mr. Judkowitz
has conducted his own CPA practices. He currently serves as the Chairman and CEO
of UniPro Financial Services, a diversified financial services company. He also
sits on the Board of Directors and serves as the Chair of the Audit Committee of
Intelligent Motor Cars, Inc. and Capital First Corporation.
Marc Goldberg has served as a director since December 1, 2004. He has
been President since 1995 of SuMa Partners, Ltd., a human resources, labor
relations and employee communication consulting firm. In addition to his
consulting practice, he has more than twenty-five years of applied expertise in
organizational effectiveness, change management and performance improvement in
Fortune 500 and emerging companies. Prior to founding SuMa Partners, Mr.
Goldberg was Vice President of Human Resources at Mobile Telecommunication
Technologies. He also served as an organization design consultant for The Mescon
Group, Inc., Vice President of Human Resources at Contel Business
Systems/Executone, Inc., and Manager of Human Resources at GE Integrated
Communication Services. He obtained his J.D. and his Bachelor of Arts in
Sociology from Boston University, and is certified as a Senior Professional in
Human Resources (SPHR) and a Business Manager (CBM).
Stewart Merkin has served as a director since December 1, 2004. Mr.
Merkin, founding partner of the Law Office of Stewart A. Merkin, has been
practicing law in Miami, Florida since 1974. His core legal practice areas
include corporate and securities law, as well as mergers and acquisitions and
international transactions. He was awarded both J.D. and M.B.A. degrees from
Cornell University, as well as a B.S. from The Wharton School, University of
Pennsylvania. He has been admitted to the Florida and New York State Bar since
1972 and 1973, respectively.
CORPORATE GOVERNANCE AND RELATED MATTERS
Board Committees and Meetings
The Board of Directors oversees our business and affairs and monitors
the performance of management. In accordance with corporate governance
principles, the Board does not involve itself in day-to-day operations. The
directors keep themselves informed through discussions with the Chief Executive
Officer, other key executives and by reading the reports and other materials
that we send them and by participating in Board and committee meetings. Our
directors hold office until their successors have been elected and duly
qualified; unless the director resigns or by reasons of death or other cause is
unable to serve in the capacity of director.
The Board meets regularly during the year to review matters affecting
our company and to act on matters requiring Board approval. It also holds
special meetings whenever circumstances require and may act by unanimous written
consent. During fiscal 2005, there were 6 meetings of the Board. All persons who
were serving as directors during fiscal 2005 attended at least 75% of the
aggregate of the meetings of the Board and committees of which they were
members. During fiscal 2005, the persons serving on our Board of Directors were
Yi Ping Chan, Bernard Appel, Harvey Judkowitz, Marc Goldberg, Stewart Merkin and
Jay Bauer. As of December 20, 2005, the persons serving on our Board are Jay
Bauer, Yi Ping Chan, Bernard Appel, Harvey Judkowitz, Marc Goldberg and Stewart
Merkin.
7
Board Committees
We have an audit committee, an executive compensation/stock option
committee and a nominating committee.
Audit Committee. As of December 20, 2005, the audit committee consists
of Messrs. Judkowitz (Chairman), Appel and Merkin. The Board has designated Mr.
Judkowitz as the "audit committee financial expert," as defined by Item 401(h)
of Regulation S-K of the Securities Exchange Act of 1934. The Board has
determined that Messrs. Judkowitz, Merkin and Appel are "independent directors"
within the meaning of the listing standards of the American Stock Exchange. The
audit committee recommends the engagement of independent auditors to the board,
initiates and oversees investigations into matters relating to audit functions,
reviews the plans and results of audits with our independent auditors, reviews
our internal accounting controls, and approves services to be performed by our
independent auditors. During fiscal 2005, the Audit Committee held 4 meetings.
Executive Compensation/Stock Option Committee. As of December 20, 2005,
the executive compensation/stock option committee consists of Messrs. Goldberg
(Chairman), Judkowitz and Bauer. The executive compensation/stock option
committee considers and authorizes remuneration arrangements for senior
management and grants options under, and administers our employee stock option
plan. During fiscal 2005, the Executive Compensation/Stock Option Committee held
4 meetings, including breakout sections during regular board meeting.
Nominating Committee. As of December 20, 2005, the nominating committee
consists of Messrs. Appel (Chairman), Bauer, Merkin and Chan. The nominating
committee is responsible for reviewing the qualifications of potential nominees
for election to the Board of Directors and recommending the nominees to the
Board of Directors for such election. During 2005, the Nominating Committee held
2 meetings.
Nomination of Directors
As provided in its charter and our company's corporate governance
principles, the Nominating Committee is responsible for identifying individuals
qualified to become directors. The Nominating Committee seeks to identify
director candidates based on input provided by a number of sources, including
(1) the Nominating Committee members, (2) our other directors, (3) our
stockholders, and (4) our Chief Executive Officer. In evaluating potential
candidates for director, the Nominating Committee considers the entirety of each
candidate's credentials.
Qualifications for consideration as a director nominee may vary
according to the particular areas of expertise being sought as a complement to
the existing composition of the Board of Directors. However, at a minimum,
candidates for director must possess:
o high personal and professional ethics and integrity;
o the ability to exercise sound judgment;
o the ability to make independent analytical inquiries;
o a willingness and ability to devote adequate time and resources to
diligently perform Board and committee duties; and
o the appropriate and relevant business experience and acumen.
In addition to these minimum qualifications, the Nominating Committee
also takes into account when considering whether to nominate a potential
director candidate the following factors:
o whether the person possesses specific industry expertise and
familiarity with general issues affecting our business;
o whether the person's nomination and election would enable the Board
to have a member that qualifies as an "audit committee financial
expert" as such term is defined by the Securities and Exchange
Commission (the "SEC") in Item 401 of Regulation S-K;
o whether the person would qualify as an "independent" director under
the listing standards of the American Stock Exchange;
o the importance of continuity of the existing composition of the
Board of Directors to provide long term stability and experienced
oversight; and
o the importance of diversified Board membership, in terms of both
the individuals involved and their various experiences and areas of
expertise.
The Nominating Committee will consider director candidates recommended
by stockholders provided such recommendations are submitted in accordance with
the procedures set forth below. In order to provide for an orderly and informed
review and selection process for director candidates, the Board of Directors has
determined that stockholders who wish to recommend director candidates for
consideration by the Nominating Committee must comply with the following:
o The recommendation must be made in writing to the Corporate
Secretary, The Singing Machine Company, Inc., 6601 Lyons Road,
Bldg. A-7, Coconut Creek, Florida 33073.
o The recommendation must include the candidate's name, home and
business contact information, detailed biographical data and
qualifications, information regarding any relationships between the
candidate and the Company within the last three years and evidence
of the recommending person's ownership of the Company's common
stock.
o The recommendation shall also contain a statement from the
recommending shareholder in support of the candidate; professional
references, particularly within the context of those relevant to
board membership, including issues of character, judgment,
diversity, age, independence, expertise, corporate experience,
length of service, other commitments and the like; and personal
references.
o A statement from the shareholder nominee indicating that such
nominee wants to serve on the Board and could be considered
"independent" under the Rules and Regulations of the American Stock
Exchange and the Securities and Exchange Commission ("SEC"), as in
effect at that time.
8
All candidates submitted by stockholders will be evaluated by the
Nominating Committee according to the criteria discussed above and in the same
manner as all other director candidates.
DIRECTOR'S COMPENSATION
During fiscal 2005, our compensation package for our non-employee
directors consisted of grants of stock options, cash payments and reimbursement
of costs and expenses associated with attending our Board meetings. Our five
non-employee directors during fiscal 2005 were Messrs. Bauer, Appel, Judkowitz,
Goldberg and Merkin.
During fiscal 2005, we have implemented the following compensation
policy for our directors:
o An initial grant of 20,000 stock options of the Company with an
exercise price determined as the closing price on the day of
joining the board. The options will vest in one year and expire in
ten years while they are board members or 90 days once they are no
longer board members.
o An annual cash payment of $7,500 will be made for each completed
full year of service or prorated for a partial year. The payment
will be made as of March 31.
o An annual stock grant of stock equivalent in value to $2,500 for
each completed full year of service or prorated for a partial year.
The stock price at grant will be determined at the closing price on
the day of the Annual Shareholder Meeting. The actual grant will be
made on or before March 31.
o An annual grant of 20,000 stock options of the Company with an
exercise price determined as the closing price on the day of the
Annual Shareholder Meeting. If the Annual Meeting is held less than
6 months after the board member first joined the board he or she
will not receive another option grant.
o Independent board members will receive a $500 fee for each board
meeting and annual meeting they attend. Committee meetings and
telephone board meetings will be compensated with a $200 fee.
o All expenses will be reimbursed for attending board, committee and
annual meetings or when their presence at a location away from home
is requested.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
To our knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, the Company believes that during the year ended March 31,
2005, its officers, directors and 10% shareholders complied with all Section
16(a) filing requirements.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for the
fiscal years ended March 31, 2005, 2004 and 2003 with regard to Yi Ping Chan,
our Interim Chief Executive Officer, and each of our other executive officers
whose compensation exceeded $100,000 on an annual basis (the "Named Officers"):
SUMMARY COMPENSATION TABLE
Summary Compensation Table
Annual Compensation Long Term Compensation
--------------------------------------------------------------------------------------
Other Securities
Annual Underlying All Other
Name of Individual and Principal Position Year Salary Bonus Compensation(1) Options / SAR's Compensation(2)
- ----------------------------------------- ---- ------ ----- --------------- --------------- ---------------
Yi Ping Chan 2005 $246,038 -- $ 6,000 -- $ 4,560
Interim CEO & COO 2004 $247,470 (15) -- $ 6,000 52,800 $ 12,180
Edward Steele 2005 $249,038 -- $ 6,500 -- $ 6,000
Former Chief Executive Officer (3) 2004 $372,809 (15) -- $ 6,000 10,000 $ 17,949
2003 $382,352 -- $ 8,671 30,000 $ 17,969
Danny Zheng 2005 $ 84,884 -- -- 12,000 $ 3,420
Chief Finance Officer (4)
Jeffery Barocas 2005 $135,346 -- $ 6,000 50,000 $ 3,420
Former Chief Finance Officer (5)
April J. Green 2004 $127,642 -- $ 3,600 4,380 $ 5,094
Former Chief Finance Officer (6) 2003 $122,200 $ 25,000 $ 3,900 20,000 $ 13,551
John Dahl 2004 $ 78,834 -- $ 1,200 50,000 $ 350
Senior Vice President of Finance (7)
John Klecha 2004 $ 41,480 -- $ 1,000 -- $189,911 (9)
Former Chief Operating Officer (8) 2003 $ 30,117 -- $ 6,555 24,000 $ 13,264
Jack Dromgold 2004 $183,266 (15) -- $ 4,500 50,000 $110,622 (11)
Former Vice President of Sales and 2003 $210,277 $ 50,000 $ 51,067 100,000 $154,072 (12)
Marketing (10)
Robert Weinberg 2004 $ 57,692 -- $ 3,000 (14)
Former Chief Executive Officer (13)
9
(1) The amounts disclosed in this column for fiscal 2005, 2004 and 2003 include
automobile expense allowances.
(2) Includes matching contributions under our 401(k) savings plan, medical
insurance pursuant to the executive's employment agreement and other expenses
described herein.
(3) Mr. Steele served as our Chief Executive Officer from September 1991 through
July 23, 2003.
(4) Mr. Danny Zheng joined our company on April 19, 2004 as financial controller
and became our Chief Financial Officer on April 5, 2005.
(5) Mr. Jeffery Barocas joined our company on April 1, 2004 as Chief Financial
Officer and resigned on April 1, 2005.
(6) Ms. Green served as our Chief Financial Officer from March 15, 2002 through
April 9, 2004.
(7) Mr. Dahl served as our Senior Vice President of Finance from October 22,
2003 through April 13, 2004.
(8) Mr. Klecha served as our Chief Operating Officer from June 28, 1999 through
May 2, 2003.
(9) Amounts paid to Mr. Klecha pursuant to his separation and release agreement
were $183,703 and $36,204 for medical insurance and matching 401(K)
contributions.
(10) Mr. Dromgold joined us on April 15, 2002 and resigned on December 16, 2003.
(11) Amounts paid to Mr. Dromgold pursuant to his separation and release
agreement were $104,640 and our matching 401(k) contributions and medical
insurance were $4,582
(12) Includes relocation expenses of $45,529, our matching contribution of
$8,543 under our 401(k) savings plan and medical insurance at a $100,000 value
contributed to option granted to Mr. Dromgold and $60,565 paid to Mr. Dromgold
pursuant to his separation and release agreement.
(13) Mr. Weinberg served as our Chief Executive Officer from July 23, 2003 to
October 12, 2003.
(14) Represents 3 months of rent paid for Mr. Weinberg's apartment in Florida.
(15) Effective as of August 1, 2003, Mr. Chan, Mr. Dromgold and Mr. Steele
agreed to take 15% of their annual compensation in the form of stock for a nine
month period until March 31, 2004 (except Mr. Steele's agreement was for an 8
month period until February 28, 2004 when his employment agreement expired).
During their respective time periods, Mr. Chan, Mr. Dromgold and Mr. Steele
received compensation in the amount of $20,125, $17,535 and $63,136 in shares of
the Singing Machine's common stock. The average trading that was used to
calculate the number of shares that would be issued to each officer was $3.85
per share.
OPTION GRANTS IN FISCAL 2005
The following table sets forth information concerning all options
granted to our officers and directors during the year ended March 31, 2005. No
stock appreciation rights ("SAR's") were granted.
SHARES TOTAL OPTIONS POTENTIAL REALIZABLE VALUE AT
UNDERLYING GRANTED TO EXERCISE ASSUMED ANNUAL RATES OF STOCK
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION PRICE APPRECIATION FOR OPTION TERM
GRANTED (1) FISCAL YEAR SHARE DATE 5% (2) 10% (2)
Yi Ping Chan -- -- -- -- -- --
Edward Steele -- -- -- -- -- --
Danny Zheng 12,000 4.55% $ 1.05 4/26/14 7,924 20,081
Jeffrey Barocas 50,000 18.94% $ 1.17 Cancelled (3) -- --
Harvey Judkowitz 20,000 7.58% $ 1.20 3/29/14 15,093 38,250
Harvey Judkowitz 20,000 7.58% $ 0.75 11/29/14 9,433 23,906
Bernard Appel 20,000 7.58% $ 0.75 11/29/14 9,433 23,906
Josef A. Bauer 20,000 7.58% $ 0.75 11/29/14 9,433 23,906
Marc D. Goldberg 20,000 7.58% $ 0.77 12/1/14 9,685 24,544
Stewart A. Merkin 20,000 7.58% $ 0.77 12/1/14 9,685 24,544
(1) All of these options were granted under a Year 2001 Stock Option Plan. The
Options granted to Mr. Judkowitz, Mr. Bauer, Mr. Goldberg, Mr. Merkin and Mr.
Appel vest in one year, on November 29, 2005 (except Mr.Goldberg's and Mr.
Merkin will fully vest on December 1, 2005). Mr. Zheng's options vest in five
equal installments beginning on April 26, 2005.
10
(2) The dollar amounts under these columns are the result of calculations based
on the market price on the date of grant at an assumed annual rate of
appreciation over the maximum term of the option at 5% and 10% as required by
applicable regulations of the SEC and, therefore, are not intended to forecast
possible future appreciation, if any, of the common stock price. Assumes all
options are exercised at the end of their respective terms. Actual gains, if
any, on stock option exercises depend on the future performance of the common
stock.
(3) Mr. Barocas received a grant of 50,000 options on April 5, 2004. These
options would expire on June 30, 2005 ninety days after Mr. Barocas resigned
from our company.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED MARCH 31, 2005 AND OPTION
VALUES
The following table sets forth information as to the exercise of stock
options during the fiscal year ended March 31, 2005 by our officers listed in
our Summary Compensation Table and the fiscal year-end value of unexercised
options.
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END (2)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME OF INDIVIDUAL UPON EXERCISE REALIZED(1) UNEXERCISABLE UNEXERCISABLE
- -------------------------- ----------------- ------------- ---------------------- ------------------------
Yi Ping Chan -- -- 117,600/85,200 0/0
Danny Zheng -- -- 2,400/9,600 0/0
EMPLOYMENT AGREEMENTS
Yi Ping Chan. Effective as of May 2, 2003, we entered into a three year
employment agreement with Yi Ping Chan, our current interim CEO and Chief
Operating Officer. Mr. Chan is entitled to receive an annual salary equal to
$250,000 per year, plus bonuses and increases in his annual salary at the sole
discretion of our Board of Directors. We agreed to grant Mr. Chan options to
purchase 150,000 shares of our common stock of which 50,000 options will vest
each year and to reimburse him for moving expenses of up to $40,000. We granted
Mr. Chan options to purchase 150,000 shares of our common stock, in July 2003.
In the event of a termination of his employment following a change of control,
Mr. Chan would be entitled to a lump sum payment of 100% of the amount of his
total compensation in the twelve months preceding such termination. During the
term of his employment agreement and for a period of two years after his
termination for cause and one year if he is terminated without cause, Mr. Chan
cannot directly or indirectly compete with our company in the karaoke industry
in the United States.
EQUITY COMPENSATION PLANS AND 401(K) PLAN
We have two stock option plans: our 1994 Amended and Restated Stock
Option Plan ("1994 Plan") and our Year 2001 Stock Option Plan ("Year 2001
Plan"). Both the 1994 Plan and the Year 2001 Plan provide for the granting of
incentive stock options and non-qualified stock options to our employees,
officers, directors and consultants. As of March 31, 2005, we had 358,700
options issued and outstanding under our 1994 Plan and 668,830 options are
issued and outstanding under our Year 2001 Plan.
The following table gives information about equity awards under our
1994 Plan and the Year 2001 Plan.
WEIGHTED-AVERAGE NUMBER OF SECURITIES
NUMBER OF SECURITIES EXERCISE PRICE OF REMAINING AVAILABLE FOR EQUITY
TO BE ISSUED UPON OUTSTANDING COMPENSATION PLANS
EXERCISE OF OUTSTANDINGS OPTIONS, WARRANTS (EXCLUDING SECURITIES IN
PLAN CATEGORY OPTION, WARRANTS AND RIGHTS AND RIGHTS COLUMN (A))
- --------------------------------------- ---------------------------- -------------------- ------------------------------
Equity Compensation Plans approved by 1,041,610 $3.67 1,251,440
Security Holders
Equity Compensation Plans Not 0 0 0
approved by Security Holders
YEAR 1994 PLAN
Our 1994 Plan was originally adopted by our Board of Directors in May
1994 and it was approved by our shareholders on June 29, 1994. Our shareholders
approved amendments to our 1994 Plan in March 1999 and September 2000. The 1994
Plan reserved for issuance up to 1,950,000 shares of our common stock pursuant
to the exercise of options granted under the Plan. As of March 31, 2003, we had
granted all the options that are available for grant under our 1994 Plan. As of
March 31, 2005, we have 343,050 options issued and outstanding under the 1994
Plan and all of these options are fully vested as of March 31, 2005.
11
YEAR 2001 PLAN
On June 1, 2001, our Board of Directors approved the Year 2001 Plan and
it was approved by our shareholders at our special meeting held September 6,
2001. The Year 2001 Plan was developed to provide a means whereby directors and
selected employees, officers, consultants, and advisors of the Company may be
granted incentive or non-qualified stock options to purchase common stock of the
Company. The Year 2001 Plan authorizes an aggregate of 1,950,000 shares of the
Company`s common stock and a maximum of 450,000 shares to any one individual in
any one fiscal year. The shares of common stock available under the Year 2001
Plan are subject to adjustment for any stock split, declaration of a stock
dividend or similar event. At March 31, 2005, we have granted 698,560 options
under the Year 2001 Plan, 432,781 of which are fully vested.
The Year 2001 Plan is administered by our Stock Option Committee
("Committee"), which consists of two or more directors chosen by our Board. The
Committee has the full power in its discretion to (i) grant options under the
Year 2001 Plan, (ii) determine the terms of the options (e.g. - vesting,
exercise price), (iii) to interpret the provisions of the Year 2001 Plan and
(iv) to take such action as it deems necessary or advisable for the
administration of the Year 2001 Plan.
Options granted to eligible individuals under the Year 2001 Plan may be
either incentive stock options ("ISO's"), which satisfy the requirements of Code
Section 422, or nonstatutory options ("NSO's"), which are not intended to
satisfy such requirements. Options granted to outside directors, consultants and
advisors may only be NSO's. The option exercise price will not be less than 100%
of the fair market value of the Company's common stock on the date of grant.
ISO's must have an exercise price greater to or equal to the fair market value
of the shares underlying the option on the date of grant (or, if granted to a
holder of 10% or more of our common stock, an exercise price of at least 110% of
the under underlying shares fair market value on the date of grant). The maximum
exercise period of ISO's is 10 years from the date of grant (or five years in
the case of a holder with 10% or more of our common stock). The aggregate fair
market value (determined at the date the option is granted) of shares with
respect to which an ISO are exercisable for the first time by the holder of the
option during any calendar year may not exceed $100,000. If that amount exceeds
$100,000, our Board of the Committee may designate those shares that will be
treated as NSO's.
Options granted under the Year 2001 Plan are not transferable except by
will or applicable laws of descent and distribution. Except as expressly
determined by the Committee, no option shall be exercisable after thirty (30)
days following an individual's termination of employment with the Company or a
subsidiary, unless such termination of employment occurs by reason of such
individual's disability, retirement or death. The Committee may in its sole
discretion, provide in a grant instrument that upon a change of control (as
defined in the Year 2001 Plan) that all outstanding option issued to the grantee
shall automatically accelerate and become fully exercisable. Additionally, the
obligations of the Company under the Year 2001 Plan are binding on (1) any
successor corporation or organization resulting from the merger, consolidation
or other reorganization of the Company or (2) any successor corporation or
organization succeeding to all or substantially all of the assets and business
of the Company. In the event of any of the foregoing, the Committee may, at its
discretion, prior to the consummation of the transaction, offer to purchase,
cancel, exchange, adjust or modify any outstanding options, as such time and in
such manner as the Committee deems appropriate.
401(K) PLAN
Effective January 1, 2001, we adopted a voluntary 401(k) plan. All
employees with at least one year of service are eligible to participate in our
401(k) plan. In fiscal 2002, we made a matching contribution of 100% of salary
deferral contributions up to 3% of pay, plus 50.369% of salary deferral
contributions from 3% to 5% of pay for each payroll period. The amounts charged
to earnings for contributions to this plan and administrative costs during the
years ended March 31, 2005, 2004 and 2003 totaled approximately $30,025, $55,402
and $61,466, respectively.
12
REPORT OF THE EXECUTIVE COMPENSATION/STOCK OPTION COMMITTEE ON EXECUTIVE
COMPENSATION
The Report of the Executive Compensation/Stock Option Committee on
Executive Compensation does not constitute soliciting material and should not be
deemed filed or incorporated by reference into any other Company filing under
the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent the Company specifically incorporates this Report by reference therein.
EXECUTIVE COMPENSATION PHILOSOPHY
The Executive Compensation Committee believes that we must maintain
short and long-term executive compensation plans that enable us to attract and
retain well-qualified executives. Furthermore, we believe that our compensation
plans must also provide a direct incentive for our executives to create
shareholder value.
In furtherance of this philosophy, the compensation of our executives
generally consists of three components: base salary, annual cash incentives and
long-term performance-based incentives.
BASE SALARIES
During fiscal 2005, we had employment agreement with one executive
officer. The base salary of each of our executive officers was determined based
on comparison to executives with similar responsibilities at other public
companies: The persons that served as executive officers during fiscal 2005 are
listed below.
Yi Ping Chan, who has served as our Chief Operating Officer since May
2, 2003 and Interim Chief Executive Officer since October 17, 2003 through the
present date.
Jeffrey Barocas, who has served as our Chief Financial officer from
April 1, 2004 and resigned on April 1, 2005.
Danny Zheng, who has served as our Financial Controller from April 19,
2004 to April 3, 2005 and served as our Chief Financial Officer from April 4,
2005 through the present date.
INCENTIVE CASH BONUSES
Generally, we award cash bonuses to our management employees and other
employees, based on their personal performance in the past year and overall
performance of our company. During fiscal 2005, we did not award any cash
bonuses to any of our executive officers because our financial performance was
weak.
LONG TERM COMPENSATION - STOCK OPTION GRANTS
We have utilized stock options to motivate and retain executive
officers and other employees for the long-term. We believe that stock options
closely align the interests of our executive officers and other employees with
those of our stockholders and provide a major incentive to building stockholder
value. Options are typically granted annually, and are subject to vesting
provisions to encourage officers and employees to remain employed with the
Company.
During fiscal 2005, we granted an aggregate of 62,000 options to our
senior executive officers. All options grants in fiscal 2005 were made under our
Year 2001 Stock Option Plan. See "Executive Compensation -Option Grants in Last
Fiscal Year" for information about the number of options granted to each
individual. Each of the option grants was at a price that was equal to the
closing price of our common stock on the date of grant.
RELATIONSHIP BETWEEN OUR COMPENSATION POLICIES AND CORPORATE PERFORMANCE
We believe that our executive compensation policies correlate with our
corporate performance. Our stock options are usually granted at a price equal to
or above the fair market value of our common stock on the date of grant. As
such, our officers only benefit from the grant of stock options if our stock
price appreciates. Generally, we try to tie bonus payments to our financial
performance. However, if an individual has made significant contributions to our
company, we will provide them with a bonus payment for their efforts even if our
company's financial performance has not been strong.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Effective as of October 17, 2003, Yi Ping Chan became our Interim Chief
Executive Officer. Mr. Chan's salary is $250,000 per year, as set forth in his
employment agreement. In July 2003, Mr. Chan agreed to accept 15% of his salary
during the nine-month period between July 1, 2003 through March 31, 2004 in the
form of stock rather than cash. We also agreed to grant Mr. Chan options to
purchase 150,000 shares of our common stock, at an exercise price of $5.60 per
share, of which 50,000 options vest each year and to reimburse him for moving
expenses of up to $40,000.
We did not grant any cash bonuses to Mr. Chan in fiscal 2005 because
our financial performance did not justify cash bonuses to any of our employees.
Even though we have cut costs significantly, we had a net operating loss of $
3.6 million in fiscal 2005.
We awarded stock options to Mr. Chan in December 2003. We awarded Mr.
Chan options to purchase 52,800 shares of our common stock at an exercise price
of $1.97 per share. These options were granted under our Year 2001 Stock Option
Plan and were granted at a price that was equal to closing price of our common
stock on the date of grant. Mr. Chan's options vest at a rate of one-third per
year over a period of three years.
The Executive Compensation Committee
Marc Goldberg (Chairman)
Jay Bauer
Harvey Judkowitz
13
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of our Executive Compensation Committee in the fiscal year
ended March 31, 2005 were Messrs. Goldberg, Judkowitz and Bauer. None of the
members of the Compensation Committee in fiscal 2005 were or are current
officers or employees of the Singing Machine or any of its subsidiaries. None of
these persons have served on the board of directors or on the compensation
committee of any other entity that has an executive officer serving on our board
of directors or on our Compensation Committee.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The chart below compares the performance of the Singing Machine's
common stock with the American Stock Market Index ("AMEX Index") and the Dow
Jones - Consumer Electronics Index ("Dow Jones-CSE"), during the period
beginning March 31, 2000 through March 31, 2005. The graph assumes the
investment of $100 on March 31, 2000 in the Singing Machine's common stock, in
the AMEX Index and the Dow Jones-CSE Index. Total shareholder return was
calculated on the basis that in each case all dividends were reinvested.
2000 2001 2002 2003 2004 2005
---------------------------------------------------------------------
The Singing Machine Company 100.00 113.78 379.02 166.88 27.73 18.01
Dow Jones Consumer Electronics Index 100.00 60.08 49.74 31.76 50.00 57.01
AMEX Market Index 100.00 84.36 83.67 79.91 70.98 76.50
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of December 1, 2005, certain
information concerning beneficial ownership of our common stock by:
o all directors of the Company,
o all executive officers of the Company.
o persons known to own more than 5% of our common stock;
We had 10,060,282 shares of our common stock issued and outstanding.
As used herein, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to vote or direct
the vote) and/or sole or shared investment power (including the power to dispose
or direct the disposition of) with respect to the security through any contract,
arrangement, understanding, relationship or otherwise, including a right to
acquire such power(s) during the next 60 days. Unless otherwise noted,
beneficial ownership consists of sole ownership, voting and investment rights.
SHARES OF PERCENT OF
COMMON STOCK(1) COMMON STOCK(1)
--------------- ---------------
Yi Ping Chan
Interim CEO and Chief Operating Officer 160,957 *
Danny Zheng
Chief Financial Officer 2,400 *
Joseph Bauer
Chairman 1,374,504 (2) 12.69%
Edward Steele
Former CEO 578,101 (3) 5.08%
Bernard Appel
Director 43,521 *
Harvey Judkowitz
Director 43,521 *
Marc Goldberg
Director 21,174 *
Stewart Merkin
Director 21,174 *
Wellington Management Company, LLP 934,000 8.62%
Target Capital 755,600 6.97%
All Directors and Executive Officers as a Group 1,667,251 15.38%
* Less than 1%.
14
(1) Includes as to the person indicated the following outstanding stock options
to purchase shares of the Company's Common Stock issued under the 1994 and 2001
Stock Option Plans , which will be vested and exercisable within 60 days of
December 1, 2005: 117,600 options held by Yi Ping Chan; 2,400 options held by
Danny Zheng; 77,580 options held by Joseph Bauer; 40,000 options held by Bernard
Appel; 40,000 options held by Harvey Judkowitz; 20,000 options held by Marc
Goldberg; 20,000 options held by Stewart Merkin; 317,580 options held by the
executive officers and directors as a group.
(2) Includes 134,434 shares held individually by Mr. Bauer, 323,216 held by Mr.
Bauer's wife, 224,374 held jointly by Mr. Bauer and his wife, 369,400 shares
held by Mr. Bauer's pension account, 245,500 shares held in Mr. Bauer's Family
LTD Partnership and 77,580 issuable upon the exercise of stock options that can
be exercisable within 60 days of December 1, 3005.
(3) Includes 163,200 held by Mr. Steele individually, 414,810 held by Mr.
Steele's wife.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 14, 2004, Josef A. Bauer, a director, advanced a short-term
loan of $200,000 to us which we are to use to meet our working capital
obligations. The interest rate on the loan is 8.5% per annum and the loan is
payable on demand. On August 26, 2004, we repaid Mr. Buaer a total of $202,109,
including $2,109 in interest.
On June 16, 2004, Edward Steele, former officer and director, advanced
$40,000 to us. The loan was interest free and paid in full on August 30, 2004.
On or about July 10, 2003, certain officers and directors of our
company advanced $1 million to our company pursuant to written loan agreements.
The officer was Yi Ping Chan and the directors were Josef A. Bauer and Howard
Moore. Mr. Moore resigned from our Board, effective as October 17, 2003.
Additionally, Maureen LaRoche, a business associate of Mr. Bauer, participated
in the financing. The loans accrue interest at 9.5% per annum and as of March
31, 2005, all interest was accrued, and the unpaid amount totaled approximately
$14,250. These loans were originally scheduled to be repaid by October 31, 2003
and are now due on demand. These loans were subordinated to Milberg's factoring
agreement, which we terminated effective as of July 14, 2004 and subsequently
subordinated to Crestmark Bank. On January 20, 2005, Messrs. Bauer, Chan and Ms.
LaRoche had converted 50% of their loan and accrued interest in the amount of
$409,500 into common stock at $0.72/share for total of 563,274 shares. On May
18, 2005, Mr. Moore had converted 100% of his loan in the amount of $200,000
into common stock at $0.72/share for total of 277,778 shares. On November 30,
2005, we have repaid $100,000 loan to Ms. LaRoche.
15
AUDIT COMMITTEE REPORT
The following Report of the Audit Committee does not constitute
soliciting material and should not be deemed filed or incorporated by reference
into any other Company filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent the Company specifically incorporates
this Report by reference therein.
The Audit Committee is responsible for assisting the Board in
monitoring (1) the quality and integrity of our financial statements, (2) our
compliance with regulatory requirements and (3) the independence and performance
of our independent auditors. Among other responsibilities, the Audit Committee
reviews, in its oversight capacity, our annual financial statement with both
management and the independent auditors and meets periodically with our
independent auditors to consider their evaluation of our financial and internal
controls. The Audit Committee also recommends to the Board of Directors the
selection of the company's independent certified public accountants. The Audit
Committee is composed of three directors and operates under a written charter
adopted and approved by the Board of Directors. During fiscal 2005, all of the
Audit Committee members were non-employee directors and were independent as
defined by the AMEX listing standards in effect during fiscal 2005. The members
of the Audit Committee during fiscal 2005 were Harvey Judkowitz, Bernard Appel
and Stewart Merkin. Mr. Judkowitz served as the Chairman of the Audit Committee.
In discharging its duties during fiscal 2005, the Audit Committee met
with and held discussions with management and our independent auditors,
Berkovits, Lago & Company, LLP. Management represented to the independent
auditors that our audited financial statements were prepared in accordance with
generally accepted accounting principles. The Audit Committee also discussed
with Berkovits, Lago & Company, LLP the matters required to be discussed by
Statement on Auditing Standards No. 61, "Communications with Audit Committees."
In addition, Berkovits, Lago & Company, LLP, provided the Audit Committee with
the written disclosures and the letter required by Independence Standards Board
Standard No. 1, "Independence Discussion with Audit Committees," and the Audit
Committee discussed with Berkovits, Lago & Company, LLP, its independence.
Based on the above-mentioned review and discussions with management and
the independent auditors, the representations of management and the report of
the independent auditors to our committee, the Audit Committee recommended that
the Board of Directors include the audited consolidated financial statements in
the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
2005.
Audit Committee
Harvey Judkowitz, Chairman
Bernard Appel
Stewart Merkin
16
PROPOSALS TO THE STOCKHOLDERS
PROPOSAL 1. ELECTION OF DIRECTORS
The six persons set below, each of whom is currently a director, are
proposed to be re-elected as directors at the Annual Meeting. If elected, each
of these directors will hold office until the next Annual Meeting of
Stockholders in the year 2006 or until his or her successor is duly elected and
qualified.
Bernard Appel
Josef Bauer
Yi Ping Chan
Marc Goldberg
Harvey Judkowitz
Stewart Merkin
All of the nominees are currently serving as directors. Each nominee
has agreed to be named in this Proxy Statement and to serve as a director if
elected. For biographical information regarding the nominees, see "Management"
of this Proxy Statement. Management expects that each nominee will be available
for election, but if any of them is not a candidate at the time when the
election occurs, it is intended that such proxy will be voted for the election
of another nominee to be designated by the Board of Directors to fill such
vacancy.
Vote Required and Recommendation
Assuming a quorum is present, the six nominees for election to the
Board of Directors who receive the greatest number of votes cast for the
election of directors by the shares present, in person or by proxy, shall be
elected directors. Shareholders do not have the right to cumulate their votes
for directors. In the election of directors, an abstention or broker non-vote
will have no effect on the outcome.
The Board recommends stockholders to vote "for" each of the nominees
for director set forth above.
17
PROPOSAL 2. APPROVAL OF INCREASE OF AUTHORIZED COMMON STOCK FROM 18,900,000
SHARES TO 100,000,000 SHARES
As of December 20, 2005, we had 18,900,000 shares of authorized common
stock, of which 10,060,282 shares are outstanding. We have reserved 5,372,898
shares of the common stock for following uses:
1) 1,950,000 shares of common stock is reserved for the 2001 stock
option plan;
2) 2,831,858 shares of common stock is reserved for $4 million
convertible debentures; and
3) 591,040 shares of common stock is reserved for the outstanding
warrant.
There were 3,466,820 shares of authorized common stock available to
issue as of December 20, 2005. We are asking our shareholders to approve an
amendment to our Certificate of Incorporation to increase our authorized common
stock from 18,900,000 shares to 100,000,000.
The terms of the additional shares of common stock will be identical to
those of the currently outstanding shares of common stock. However, because
holders of common stock have no preemptive rights to purchase or subscribe for
any unissued stock of the Company, the issuance of additional shares of common
stock will reduce the current stockholders' percentage ownership interest in the
total outstanding shares of common stock. This amendment will not alter the
current number of issued shares. The relative rights and limitations of the
shares of common stock would remain unchanged under this proposal.
The increase in the number of authorized but unissued shares of common
stock would enable the Company, without further stockholder approval, to issue
shares from time to time as may be required for proper business purposes, such
as raising additional capital for ongoing operations, business and asset
acquisitions or mergers, stock splits and dividends, present and future employee
benefit programs and other corporate purposes. If approved, the Company has no
present intentions to issue any of the newly authorized shares of common stock.
In addition, one of the effects of this proposed amendment might be to
enable the Board to render it more difficult to, or discourage an attempt to,
obtain control of the Company by means of a merger, tender offer, proxy contest
or otherwise, and thereby protect the continuity of present management. The
Board would, unless prohibited by applicable law, have additional shares of
common stock available to effect transactions (such as private placements) in
which the number of the Company's outstanding shares would be increased and
would thereby dilute the interest of any party attempting to gain control of the
Company. Such action could discourage an acquisition of the Company, which
stockholders might view as desirable.
While the amendment may have anti-takeover ramifications, the Board
believes that the financial flexibility offered by the amendment outweighs any
disadvantages. To the extent that the amendment may have anti-takeover effects,
the amendment may encourage persons seeking to acquire the Company to negotiate
directly with the Board enabling the Board to consider the proposed transaction
in a manner that best serves the stockholders' interests.
The Board recommends shareholders to vote "for" the approval to amend our
Certificate of Incorporation to increase the number of authorized
common stock from 18,900,000 to 100,000,000 shares.
18
PROPOSAL 3. RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We are asking our shareholders to ratify the Audit Committee's
appointment of Berkovits, Lago & Company, LLP as our independent certified
public accountants for the fiscal year ending March 31, 2006. In the event the
shareholders fail to ratify the appointment, the Audit Committee will reconsider
this appointment. Even if the appointment is ratified, the Audit Committee, in
its discretion, may direct the appointment of a different independent auditing
firm at any time during the year if the Audit Committee determines that such a
change would be in our company and our shareholder's best interests.
We engaged Berkovits, Lago & Company, LLP as our independent auditor on
October 15, 2004 and Berkovits, Lago & Company, LLP audited our consolidated
financial statements or the fiscal year ended March 31, 2005. Representatives of
Berkovits, Lago & Company, LLP are expected to be present at the meeting and
will have the opportunity to make a statement if they desire to do so. It is
also expected that they will be available to respond to appropriate questions.
Principal Accountant Fees and Services
The following is a summary of the fees billed to the Singing Machine by
Berkovits, Lago & Co, LLP and Grant Thornton, LLP for professional services
rendered for the fiscal years ended March 31, 2005 and 2004:
Fee Category Fiscal 2005 Fiscal 2004
----------- -----------
Audit Fees $289,790 $ 217,632
Tax Fees 33,543 103,958
All Other Fees 12,938 5,041
Total Fees $336,271 $ 326,631
Audit Fees - Consists of fees billed for professional services rendered
for the audit of the Singing Machine's consolidated financial statements and
review of the interim consolidated financial statements included in quarterly
reports and services that were provided by Berkovits, Lago & Co, LLP and Grant
Thornton LLP in connection with statutory and regulatory filings or engagements.
Tax Fees - Consists of fees billed for professional services for tax
compliance, tax advice and tax planning. These services include assistance
regarding federal, state and international tax compliance, tax audit defense,
customs and duties, mergers and acquisitions, and international tax planning.
All Other Fees - Consists of fees for products and services other than
the services reported above. In fiscal 2004, these services included general
business meetings between Grant Thornton, and executives and directors of The
Singing Machine.
Out of the total 2005 audit and other fees, $86,219 was billed by
Berkovits, Lago and Company, LLP.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors
The Audit Committee's policy is to pre-approve all audit and
permissible non-audit services provided by the independent auditors. These
services may include audit services, audit-related services, tax services and
other services. Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or category of services
and is generally subject to a specific budget. The independent auditors and
management are required to periodically report to the Audit Committee regarding
the extent of services provided by the independent auditors in accordance with
this pre-approval, and the fees for the services performed to date. The Audit
Committee may also pre-approve particular services on a case-by-case basis.
Vote Required and Recommendation
The ratification of the selection of, as our independent certified
public accountants Berkovits, Lago and Company, LLP.for the fiscal year ending
March 31, 2006, requires the affirmative vote of the holders of a majority of
shares of the Company's common stock, present in person or by proxy at the
annual meeting.
The Board recommends shareholders to vote "for" the ratification of the
selection of Berkovits, Lago and Company, LLP, as our independent auditors
for the fiscal year ended March 31, 2006.
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ANNUAL REPORT ON FORM 10-K
We are mailing copies of our Annual Report on Form 10-K for the twelve
months ended March 31, 2005 with this proxy statement to our shareholders of
record as of December 19, 2005.
STOCKHOLDERS SHARING THE SAME LAST NAME AND ADDRESS
We have adopted a procedure approved by the SEC called "householding."
Under this procedure, certain stockholders of record who have the same address
and last name will receive only one copy of our Annual Report, Proxy Statement
and any additional proxy soliciting materials sent to stockholders until such
time as one or more of these stockholders notifies us that they wish to continue
receiving individual copies. This procedure will reduce duplicate mailings and
save printing costs and postage fees, as well as natural resources. Stockholders
who participate in householding will continue to receive separate proxy cards.
If you received a household mailing this year, and you would like to
have additional copies of our Annual Report and Proxy Statement mailed to you,
please submit your request to Corporate Secretary, The Singing Machine Company,
Inc., 6601 Lyons Road, Bldg. A-7, Coconut Creek, FL 33073, or call (954)
596-1000. Upon your request, we will promptly deliver a separate copy of our
Annual Report and Proxy Statement. You may also contact us at the address or
phone number above if you received multiple copies of the annual meeting
materials and would prefer to receive a single copy in the future. If you would
like to opt out of householding for future mailings, call (954) 596-1000 or send
a written request to the Corporate Secretary at the above address, and your
request will be effective within 30 days.
INFORMATION CONCERNING SHAREHOLDER PROPOSALS
Under SEC rules, any stockholder who intends to present a proposal at
our next Annual Meeting of Stockholders must submit the proposal, in writing, so
that we receive it at our principal executive office by September 15, 2006 in
order for the proposal to be included in our Proxy Statement and proxy for such
meeting. The submission of a stockholder proposal does not guarantee that it
will be included in our Proxy Statement. We reserve the right to reject, rule
out of order or take other appropriate action with respect to any proposal that
does not comply with these and other applicable requirements.
PROXY SOLICITATION COSTS.
The proxies being solicited hereby are being solicited by the Company.
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
card and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of common stock beneficially owned
by others to forward to such beneficial owners. Officers and regular employees
of the Company may, but without compensation other than their regular
compensation, solicit proxies by further mailing or personal conversations, or
by telephone, telex, facsimile or electronic means. We will, upon request,
reimburse brokerage firms and others for their reasonable expenses in forwarding
solicitation material to the beneficial owners of stock.
OTHER MATTERS
As of the date of this Proxy Statement, we are not aware of any matter
to be presented for action at the meeting other than the matters set forth
above. If any other matter is properly brought before the meeting for action by
shareholders, proxies in the enclosed form returned to us will be voted in
accordance with the recommendation of the Board of Directors, or in the absence
of such a recommendation, in accordance with the judgment of the proxy holders.
Coconut Creek, Florida
December 20, 2005
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PROXY CARD
THE SINGING MACHINE COMPANY, INC.
PROXY FOR ANNUAL MEETING TO BE HELD ON JANUARY 17, 2006
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Yi Ping Chan, as proxy, with the power
to appoint his substitute, to represent and to vote all the shares of common
stock of The Singing Machine Company, Inc. (the "Company"), which the
undersigned would be entitled to vote, at the Company's Annual Meeting of
Stockholders to be held on January 17, 2006 and at any adjournments thereof,
subject to the directions indicated on the reverse side hereof.
In their discretion, the proxy is authorized to vote upon any other
matter that may properly come before the meeting or any adjournments thereof.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE, BUT IF NO
CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES
AND FOR THE PROPOSALS LISTED ON THE REVERSE SIDE.
IMPORTANT--This Proxy must be signed and dated on the reverse side.
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THIS IS YOUR PROXY
YOUR VOTE IS IMPORTANT!
Dear Stockholder:
We cordially invite you to attend the Annual Meeting of Stockholders of
The Singing Machine Company, Inc. to be held at the Company's executive offices
located at 6601 Lyons Road, Building A-7, Coconut Creek, Florida 33073, on
Tuesday January 17, 2006, beginning at 9:00 a.m. local time.
Please read the proxy statement which describes the proposals and
presents other important information, and complete, sign and return your proxy
promptly in the enclosed envelope.
-------------------------------
VOTING BY MAIL
-------------------------------
-------------------------------
Simply mark, sign and
date your proxy card
and return it in the
postage-paid envelope.
-------------------------------
- ------------------------------- -----------------------------
COMPANY NUMBER CONTROL NUMBER
- ------------------------------- -----------------------------
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1-3
1. Election of Directors FOR WITHHOLD
Nominees:
---------
Bernard Appel [_] [_]
Josef Bauer [_] [_]
Yi Ping Chan [_] [_]
Marc Goldberg [_] [_]
Harvey Judkowitz [_] [_]
Stewart Merkin [_] [_]
- --------------------------------------------------------------------------------
(Except nominee(s) written above)
FOR AGAINST ABSTAIN
2. Proposal to increase the number of
authorized shares of common stock from
18,900,000 to 100,000,000 shares [_] [_] [_]
FOR AGAINST ABSTAIN
3. Proposal to ratify Berkovits & Lago
& Company, LLP as the Company's
independent auditors for fiscal
year 2006 [_] [_] [_]
To sign up for electronic If you plan to attend the Annual
voting please mark this box [__] Meeting please mark this box [_]
Dated:________________, 200_
Signature ______________________________________________________________________
Name (printed) _________________________________________________________________
Title __________________________________________________________________________
Important: Please sign exactly as name appears on this proxy. When signing as
attorney, executor, trustee, guardian, corporate officer, etc., please indicate
full title.
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