SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amend 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 Under 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
October 28, 2004
To our Stockholders:
I am pleased to invite you to attend the Annual Meeting of Stockholders of
The Singing Machine Company, Inc. to be held on Monday, November 29, 2004 at
9:30 a.m. at the Marriott Town Center Hotel located at Boca Center, 5150 Town
Center Circle, Boca Raton, Florida.
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. 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 Singing Machine
Company, Inc.
Sincerely,
/s/ Yi Ping Chan
Yi Ping Chan
Interim CEO
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THE SINGING MACHINE COMPANY, INC.
6601 Lyons Road, Bldg. A-7
Coconut Creek, Florida 33073
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Our Stockholders:
Our Annual Meeting of Stockholders of the Company will be held on Monday,
November 29, 2004 at 9:30 a.m. at the Marriott Town Center Hotel which is
located at Boca Center, 5150 Town Center Circle, Boca Raton, Florida, for the
following purposes:
1. To elect four directors to serve until the next Annual Meeting of
Shareholders and until their successors shall be elected and qualified;
2. To ratify the appointment of Berkovits, Lago, & Company LLP as our
independent certified public accountants for the fiscal year ending March 31,
2005.
3. To transact such other and further business as may properly come before
the meeting.
Only shareholders of record at the close of business on October 18, 2004
are entitled to notice of and to vote at the Annual Meeting or any postponements
or adjournments thereof.
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. If
you attend the Annual Meeting, you may vote in person if you wish, even if you
previously returned you proxy card.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE AND IN FAVOR OF
EACH PROPOSAL.
By Order of the Board of Directors
/s/ Yi Ping Chan
Yi Ping Chan
Interim CEO
Coconut Creek, Florida
October 28, 2004
PROXY STATEMENT FOR ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD NOVEMBER 29, 2004
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 2005 Annual Meeting of Shareholders, and at any postponement or
adjournment of this meeting. Our annual meeting will be held on November 29,
2004 at the Marriott Town Center Hotel located at Boca Center, 5150 Town Center
Circle, Boca Raton, Florida. 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 mail to our shareholders on or about October 28, 2004.
OUTSTANDING SECURITIES AND VOTING RIGHTS
Only holders of record of our common stock at the close of business on
October 18, 2004, the record date, will be entitled to notice of, and to vote at
the, the Annual Meeting. On that date, we had 9,202,813 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. 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. Alternatively, by following the instructions on your
proxy card, you may vote those shares by the Internet at
www.continentalstock.com.
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" the election of each of the nominees
to the Board named herein, and "FOR" the ratification of Berkovits, Lago, &
Company LLP, as our independent certified public accountants. 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.
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. Alternatively, if your bank our brokerage firm
has arranged for Internet or telephonic voting of shares, you may vote by
following the instructions for using those services on the voting instruction
form. If your bank or brokerage firm uses ADP Investor Communication Services,
you may vote your shares via the Internet at www.proxyvote.com or by calling the
telephone number on your voting instruction form.
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All votes will be tabulated by 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, 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 or 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 any 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.
MANAGEMENT
The following table sets forth certain information with respect to our
executive officers and directors as of October 27, 2004
NAME AGE POSITION
Yi Ping Chan 40 Interim Chief Executive Officer,
Chief Operating Officer,
Secretary and Director
Jeffrey S. Barocas 56 Chief Financial Officer
Josef A. Bauer 65 Chairman of the Board
Bernard Appel 72 Director
Harvey Judkowitz 59 Director
YI PING CHAN has served as our Chief Operating Officer since May 2, 2003
and as our interim Chief Executive Officer since October 17, 2003. Prior to this
appointment, Chan was a consultant to the Company from March 31, 2003 through
May 2, 2003. He was a founder of MaxValue Capital Ltd., a Hong Kong-based
management consulting and investment firm, and co-founder of E Technologies
Ltd., Hong Kong, which specialized in health care technology transfer from April
1996 to October 2002. Prior to this, Mr. Chan worked at Allied Signal (now part
of Honeywell) for joint ventures and acquisition in Asia as well as worked for
IBM as engineer. Mr. Chan earned an MBA in 1994 and a MSEE in 1990 from Columbia
University, and a BSEE, Magna Cum Laude, in 1987 from Polytechnic University,
New York.
JEFFREY S. BAROCAS has served as Chief Financial Officer since April 9,
2004. Prior to this appointment Barocas was Chief Financial Officer at
Biometrics Security Technology, Inc., a Boca Raton based security software
developer. From 1996 to 2002 he was Chief Financial Officer at QUIPP, Inc., a
Miami based manufacturer of automated capital equipment. From 1986 to 1995 he
was Chief Financial Officer at London International U.S. Holdings a subsidiary
of UK based London International. Mr. Barocas earned an MBA in public accounting
from St. John's University and completed the Senior Executive Management Program
at the London School of Economics, UK.
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JOSEF A. BAUER has served as a director since October 15, 1999 and as
Chairman of the Board since October 2003. Mr. Bauer previously served as a
director of the Company from February 1990 until September 1991 and from
February 1995 until July 1997, when we began a 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 companies 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 and Chairman of the Audit
Committee since March 29, 2004. Mr. Judkowitz has more than 38 years of
experience in accounting and is a licensed Certified Public Accountant in New
York and Florida. He served as the Chairman of the accounting boards in New York
State in the late 1970's. He is currently Chairman and CEO of UniPro Financial
Services and has a CPA practice. Mr. Judkowitz was CEO of Designers
International Corporation a manufacturing company from 1982 to 1985, CEO of
Utilicore Corporation, a telecom company, from 1998 to June 1999 and President
of NetWebOnLine.Com Inc., a public company with on-line business ventures from
1998 to 2001.
CORPORATE GOVERNANCE AND RELATED MATTERS
BOARD COMMITTEES AND MEETINGS
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 2004, there were 5 meetings of the Board. All persons who
were serving as directors during fiscal 2004 attended at least 75% of the
aggregate of the meetings of the Board and committees of which they were
members. During fiscal 2004, the persons serving on our Board of Directors were
Yi Ping Chan, Bernard Appel, Jay Bauer and Richard Ekstract (resigned June 1,
2004). As of October 27, 2004, the persons serving on our Board are Jay Bauer,
Yi Ping Chan, Bernard Appel and Harvey Judkowitz.
In fiscal 2004, we had three standing committees: an Audit Committee, the
Executive Compensation/ Stock Option Committee and a Nominating Committee.
The Audit Committee assists the Board in fulfilling its oversight
responsibility relating to our financial statements and financial reporting
process, the qualifications independence and performance of our independent
auditors, the performance of our internal audit functions and our compliance
with legal and regulatory requirements. The members of the Audit Committee
during fiscal 2004 were Messrs. Judkowitz (Chairman), Appel and Ekstract
(resigned June 1, 2004) each of them was independent as defined by the American
Stock Exchange Rules in effect during this time period. We have attached a copy
of our Audit Committee Charter as Exhibit A to this proxy. The Audit Committee
held two meetings during fiscal 2004.
The Executive Compensation/Stock Option Committee considers and authorizes
remuneration arrangements for senior management and grants options under, and
administers our 1994 Stock Option Plan and our Year 2001 Stock Option Plan. The
Executive Compensation/Stock Option Committee held one meeting during fiscal
2004 and the members of the Executive Compensation/Stock Option Committee during
this time period were Messrs. Bauer, Judkowitz and Appel.
The Nominating Committee reviews and assesses the composition of the
Board, assists in identifying potential new candidates for directors, including
nominees recommended to the Secretary of the Company in writing by stockholders,
and recommends candidates for election as Directors. The entire Board of
Directors serves as the Nominating Committee.
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DIRECTOR'S COMPENSATION
During fiscal 2004, our employee directors did not receive any additional
or special compensation for serving as directors. We reimbursed each independent
director for out-of-pocket expenses that they incurred while serving for serving
on our Board during fiscal 2004.
In January 2004, based upon the recommendation of the Compensation
Committee and based on competitive data, we adopted changes to our compensation
policies for our directors. These changes were adopted in order to bring the
compensation packages of the Company's board members more in line with
compensation paid to directors of comparable companies, recognized the increased
workload and responsibilities of board and committee members in recent years,
and enables the Company to attract qualified directors when needed. The new
board compensation will be as follows:
For fiscal 2005, we will implement the following compensation policy for our
directors.
o Each non-employee director will receive an annual retainer of
$10,000, with $7,500 to be paid in cash and $2,500 to be paid in
stock, based on the closing price of our common stock on the date of
the annual shareholder's meeting or any other date selected by the
Board.
o Each non-employee director will also receive an initial stock option
grant for 20,000 shares upon joining our Board of Directors and each
continuing non-employee director will receive an annual stock option
grant for 20,000 shares for each additional year served on the Board
which will be awarded on the anniversary date of the Board member's
initial grant.
o Each non-employee director will be reimbursed for all reasonable
expenses incurred in attending Board meetings and will receive a fee
of $500 for each Board or committee meeting attended.
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, 2004, its
officers, directors and 10% shareholders complied with all Section 16(a) filing
requirements.
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EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for the
fiscal years ended March 31, 2004, 2003 and 2002 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
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------ -----------------------------
OTHER SECURITIES
NAME OF INDIVIDUAL AND ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS/SAR'S COMPENSATION(2)
------------------------------------------------------------------------------------------------------------------
Yi Ping Chan 2004 $247,470 (4) -- $ 6,000 52,800 $ 12,180
Interim Chief Executive Officer
and
Chief Operating Officer(3)
Edward Steele 2004 $378,809 (4) -- $ 6,000 10,000 $ 17,949
Former Chief Executive 2003 $382,352 -- $ 8,671 30,000 $ 17,969
Officer(5) 2002 $364,145 $192,133 $ 8,258 15,000 $ 17,908
April J. Green 2004 $127,642 -- $ 3,600 4,380 $ 5,094
Chief Financial Officer(6) 2003 $122,200 $ 25,000 $ 3,900 20,000 $ 13,551
2002 $ 88,825 $ 25,000 $ 3,900 30,000 $ 7,091
John Dahl 2004 $ 78,834 -- $ 1,200 50,000 $ 350
Senior Vice President of
Finance(7)
John Klecha 2004 $ 41,480 -- $ 1,000 0 $189,911(9)
Former Chief Operating 2003 $300,117 -- $ 6,555 24,000 $ 13,264
Officer(8) 2002 $286,111 $157,200 $ 6,242 15,000 $ 11,725
Jack Dromgold 2004 $183,266(4) -- $ 4,500 50,000 $110,622(11)
Former Vice President of Sales 2003 $210,277 $ 50,000 $ 51,067 100,000 $154,072(12)
and Marketing(10) 2002 -- -- -- -- --
Robert Weinberg 2004 $ 57,692 -- 3,000 (14)-- --
Former Chief Executive
Officer(13)
---------
(1) The amounts disclosed in this column for fiscal 2004, 2003 and 2002
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. Chan became our Interim Chief Executive Officer on October 17, 2004.
(4) 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.
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(5) Mr. Steele served as our Chief Executive Officer from September 1991
through July 23, 2003. He currently serves as our Senior Advisor and
Director of Product Development.
(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, 2003.
(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 August 3, 2003 to
October 17, 2003.
(14) Represents 3 months of rent paid for Mr. Weinberg's apartment in Florida.
OPTION GRANTS IN FISCAL 2004
The following table sets forth information concerning all options granted to our
officers and directors during the year ended March 31, 2004. No stock
appreciation rights ("SAR's") were granted.
TOTAL OPTIONS EXERCISE EXPIRATION POTENTIAL REALIZABLE VALUE AT
GRANTED TO PRICE DATE ASSUMED ANNUAL RATES OF STOCK PRICE
SHARES EMPLOYEES IN PER SHARE APPRECIATION FOR OPTION TERM
UNDERLYING FISCAL YEAR 5% 10%
OPTIONS GRANTED
(1)
------------------- --------------- -------------- ------------- -------------- ---------------------
Yi Ping Chan 52,800 3.3% $ 1.97 12/18/14 $ 169,431 $ 269,791
Edward Steele 10,000 .6% $ 1.97 12/18/14 $ 32,089 $ 51,097
April J. Green 4,380 .3% $ 1.97 Cancelled(3) $ 14,055 $22,380
John Dahl 50,000 3.1% $ 1.97 Cancelled(3) $ 160,446 $ 255,484
John Klecha -- -- -- -- -- --
Jack Dromgold 50,000 3.1% $ 7.60 Cancelled(3) -- --
Robert Weinberg -- -- -- -- -- --
----------
(1) All of these options were granted under a Year 2001 Stock Option Plan. The
Options granted to Mr. Steele, Ms. Green, Mr. Dahl and Mr. Dromgold vest
in five equal installments over a period of five years, beginning on
December 13, 2004 (except Mr. Dromgold's vesting began on April 15, 2004).
Mr. Chan's options vest in 3 equal installments over a 3 year period.
(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.
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(3) Mr. Dromgold received a grant of 50,000 options on April 15, 2003. These
options expired on March 18, 2004, ninety days after Mr. Dromgold resigned
from our company. Ms. Green and Mr. Dahl options expired on July 09, and
July 13, 2004 respectively, ninety days after Ms. Green and Mr. Dahl
resigned from our Company.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED MARCH 31, 2004 AND OPTION
VALUES
The following table sets forth information as to the exercise of stock
options during the fiscal year ended March 31, 2004 by our officers listed in
our Summary Compensation Table and the fiscal year-end value of unexercised
options.
SHARES VALUE NUMBER OF VLUE OF UNEXERCISED
ACQUIRED REALIZED UNEXERCISED IN-THE-MONEY OPTIONS
UPON EXERCISE (1) OPTIONS AT
AT FISCAL YEAR FISCAL YEAR END (2)
END EXERCISABLE/
EXERCISABLE/ UNEXERCISABLE
NAME OF INDIVIDUAL UNEXERCISABLE
------------------------------------- --------------- -------- ------------------ -----------------------
Yi Ping Chan -- -- 50,000/152,800 0/0
Edward Steele -- -- 322,500/10,000 0/0
April J. Green -- -- 30,000/19,380 0/0
John Dahl -- -- 0/50,000 0/0
John Klecha -- -- 0/0 0/0
Jack Dromgold -- -- 0/0 0/0
Robert Weinberg -- -- =0/0 0/0
EMPLOYMENT AND OTHER AGREEMENTS
YI PING CHAN. Effective as of May 2, 2003, we entered into a three-year
employment agreement with Yi Ping Chan, our 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 the Company's
Board of Directors. In July 2003, Mr. Chan agreed to accept 15% of his salary
during 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 the Company's common stock at an exercise price of $5.60 per
share, of which 50,000 options will vest each year and to reimburse him for
moving expenses of up to $40,000. 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 year 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.
EDDIE STEELE. On February 27, 2004, we extended our employment agreement
with Eddie Steele for one year. Mr. Steele will serve as the Director of Product
Development for a one year period to expire on February 28, 2005. Under his
employment agreement, Mr. Steele is entitled to receive annual compensation of
$250,000 per year; however, Mr. Steele has agreed to take a 20% pay cut so his
base salary is $200,000 per year. The agreement also provides for discretionary
bonuses. In the event of a termination of his employment following a change of
control, Mr. Steele would be entitled to a lump sum payment of 50% 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 one year after
his termination for cause, Mr. Steele cannot directly or indirectly compete with
our company in the karaoke industry in the United States.
EQUITY COMPENSATION PLANS AND 401(K) PLAN
The Company has two stock option plans: the 1994 Amended and Restated
Stock Option Plan ("1994 Plan") and the Year 2001 Stock Option Plan ("2001
Plan"). Both the 1994 Plan and the 2001 Plan provide for the granting of
incentive stock options and non-qualified stock options to our employees,
officers, directors and consultants As of December 1, 2003, we had 389,900
options issued and outstanding under our 1994 Plan and 629,500 options are
issued and outstanding under our 2001 Plan.
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The following table gives information about equity awards under our 1994
Plan, the 2001 Plan
WEIGHTED-AVERAGE NUMBER OF SECURITIES
EXERCISE PRICE OF REMAINING AVAILABLE FOR EQUITY
NUMBER OF SECURITIES OUTSTANDING COMPENSATION PLANS
TO BE ISSUED UPON OPTIONS, WARRANTS (EXCLUDING SECURITIES IN
EXERCISE OF OUTSTANDING AND RIGHTS COLUMN (A))
PLAN CATEGORY OPTION, WARRANTS AND RIGHTS
-------------------------------- ------------------------ --------------------- -----------------------------------
Equity Compensation Plans 1,027,530 $3.95 784,195
approved by Security Holders
Equity Compensation Plans Not 0 0 0
approved by Security Holders
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 million share 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 October 27, 2004, we had 345,300 options issued and outstanding
under the 1994 Plan and all of these options are fully vested.
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, 2004, we have granted 423,980 options
under the Year 2001 Plan, 26,668 of which are fully vested.
The 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 2001 Plan, (ii)
determine the terms of the options (e.g. - vesting, exercise price), (iii) to
interpret the provisions of the 2001 Plan and (iv) to take such action as it
deems necessary or advisable for the administration of the 2001 Plan.
Options granted to eligible individuals under the 2001 Plan may be either
incentive stock options ("ISO's"), which satisfy the requirements of Code
Section 422, or non-statutory 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 amounts exceeds
$100,000, our Board of the Committee may designate those shares that will be
treated as NSO's.
Options granted under the 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
2001 Plan) that all outstanding option issued to the grantee shall
automatically, accelerate and become full exercisable. Additionally, the
obligations of the Company under the 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.
9
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, 2004, 2003 and 2002 totaled approximately $55,402, $61,466
and $41,733, respectively.
REPORT OF THE EXECUTIVE COMPENSATION/STOCK OPTION COMMITTEE
ON EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION PHILOSOPHY
The Executive Compensation Committee believes that our company 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 2004, we had employment agreements with our six senior
executive officers: Eddie Steele, our Chief Executive Officer; John Klecha, our
Chief Operating Officer; Yi Ping Chan our new Interim Chief Executive Officer
and Chief Operating Officer, April Green, our Chief Financial Officer, John Dahl
our Senior Vice President of Finance and Jack Dromgold, our Executive Vice
President of Sales. The base salaries of each of our executive officers were
determined based on comparison to executives with similar responsibilities at
other public companies.
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 2004 no cash bonuses were awarded
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.
10
During fiscal 2004, we granted an aggregate of 167,180 options to our
senior executive officers. All options grants in fiscal 2004 were made under our
Year 2001 Stock Option Plan. 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
During fiscal 2004, we had three different individuals serving in the
position as Chief Executive Officer. Edward Steele served as our Chief Executive
Officer for approximately four months during fiscal 2004 from April 1, 2003
through August 3, 2003. His base salary for the period between June 1, 2003
through June 1, 2004 as contained in his employment agreement was $385,875 per
year. During this time period, Mr. Steele received salary payments equal to
$128,625. In July 2003, Mr. Steele agreed to accept 15% of his salary during the
eight month period between July 1, 2003 through February 28, 2004 in the form of
stock rather than cash. Although Mr. Steele resigned as the Chief Executive
Officer on August 3, 2003, he remains with our company and is employed as our
Director of Product Development.
Robert Weinberg served as our Chief Executive Officer for a period of
approximately three months from August 3, 2003 through October 17, 2003, when he
resigned for personal reasons. We did not have an employment agreement with Mr.
Weinberg. Mr. Weinberg received $53,000 for his few months as our CEO. Because
Mr. Weinberg lived in New Jersey, we agreed to pay him for the cost of renting
an apartment in South Florida when he visited our company's headquarters. We did
not grant any options or cash bonuses to Mr. Weinberg during his tenure as our
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 or other officers in fiscal
2004 because our financial performance did not justify cash bonuses to any of
our employees. We had a net operating loss of $ 22.6 million in fiscal 2004.
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
Jay Bauer, Chairman
Bernard Appel
Harvey Judkowitz
11
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of our Executive Compensation Committee as of in the fiscal
year ended March 31, 2004 were Messrs. Appel, Bauer and Judkowitz. None of the
members of the Compensation Committee in fiscal 2004 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 graph 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, 1999 through March 31, 2004. The graph assumes the investment of $100 on
March 31, 1999 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.
[PERFORMANCE GRAPH OMITTED]
1999 2000 2001 2002 2003 2004
--------------------------------------------------
The Singing Machine Company, Inc. 100.00 225.00 256.00 852.80 375.47 62.40
Dow Jones Consumer Electronics Index 100.00 219.40 131.81 109.14 69.68 112.51
AMEX Market Index 100.00 141.41 119.30 118.32 113.00 159.70
12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table set forth as of October 27, 2004, 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;
Unless otherwise indicated, the address for each person is The Singing
Machine Company, Inc., 6601 Lyons Road, Building A-7, and Coconut Creek, Florida
33073. As of October 27, 2004, we had 9,202,813 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
NAME COMMON STOCK COMMON STOCK
---------------------- -------------------
Y.P. Chan 67,652 (1) *
Interim CEO and Chief Operating Officer
Joseph Bauer 991,172 (2) 10.77%
Chairman
Bernard Appel *
Director -
Harvey Judkowitz *
Director -
1,040,310 (3) 11.30%
Edward Steele
Employee
John Klecha 810,811 (4) 8.81%
Former President and Chief Operating Officer
Wellington Management Company, LLP 934,000 (5) 10.15%
All Directors and Executive Officers as a Group 1,058,824 11.51%
----------
*Less than 1%.
(1) Includes 50,000 shares issuable upon the exercise of stock options that
are exercisable as of October 27, 2004 at price of $5.60.
13
(2) Includes 11,197 shares held by Mr. Bauer individually, 200,000 shares held
by Mr. Bauer's wife, 180,374 shares held by Mr. Bauer and his wife
jointly, 369,400 shares held by Mr. Bauer's pension account, 217,500
shares held in Mr. Bauer Family United Partnership and 3,333 share
issuable upon the exercise of stock options that can be exercisable within
60 days of October 27, 2004.
(3) Includes 502,000 shares held by Mr. Steele individually, 214,810 shares
held by Mr. Steele's wife, 322,500 share issuable upon the exercise of
stock options that can be exercisable as of October 27, 2004.
(4) All of the information presented in this item with respect to Mr. Klecha's
beneficial ownership were extracted solely from his Amendment No. 2 to his
Schedule 13D filed on October 20, 2003.
(5) The address of Wellington Management Company, LLP is 75 State Street,
Boston, Massachusetts. All of the information presented in this item with
respect to this beneficial ownership was extracted solely from their
Schedule 13G filed on February 12, 2004.
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. Bauer a total of $202,109, including
$2,109 in interest.
In June 2004, Edward Steele, former officer and director, advanced $40,000
to us. The loan was interest fee 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. These loans bear interest at the rate of 9.5% per annum. These loans
were subordinated to Milberg's factoring agreement, which we terminated
effective as of July 14, 2004. The Board has not yet determined when these loans
will be repaid. Currently, the loan is subordinated to another financial
institution.
On or about March 4, 2003, Josef A. Bauer, a director, advanced $400,000
to International SMC pursuant to a letter agreement, which used the funds to
make an advance to a vendor for the purchase of raw materials for the production
of our machines. We were to repay Mr. Bauer's loan in two months on or about May
4, 2003 and the loan bore interest at the rate of 8% per annum. We repaid
$200,000 on the loan on or about May 4, 2003 and the remaining balance was paid
on or about October 10, 2003.
We believe that of all of these related party transactions described above
are on terms that are as favorable as terms that we could have obtained from
unrelated third parties.
AUDIT COMMITTEE REPORT
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 2004, all of the Audit
Committee members were non-employee directors and were independent as defined by
the AMEX listing standards in effect during fiscal 2004. The members of the
Audit Committee during fiscal 2004 were Harvey Judkowitz, Richard Ekstract (
resigned on June 1, 2004), Jay Bauer, and Bernard Appel. Mr. Judkowitz served as
the Chairman of the Audit Committee.
14
In discharging its duties during fiscal 2004, the Audit Committee met with
and held discussions with management and our independent auditors, Grant
Thornton, 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 Grant Thornton,
LLP the matters required to be discussed by Statement on Auditing Standards No.
61, "Communications with Audit Committees." In addition, Grant Thornton, 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 Grant
Thornton, LLP, and 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,
2004.
AUDIT COMMITTEE -
Harvey Judkowitz, Chairman
Bernard Appel
Jay Bauer
PROPOSALS TO THE STOCKHOLDERS
PROPOSAL 1. ELECTION OF DIRECTORS
The four 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 2005 or until his or her successor is duly elected and
qualified.
Bernard Appel
Josef Bauer
Yi Ping Chan
Harvey Judkowitz
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"
on pages 3-4 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 of
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
The four 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.
CHANGE OF CONTROL
The Committee may in its sole discretion, provide in a Grant Instrument
that upon a Change of Control (as defined in the Plan or otherwise), that all
outstanding options or stock awards issued to the grantee shall automatically
accelerate and become fully exercisable. Additionally, the obligations of the
Company under the 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 or stock awards, as such time and in such manner
as the Committee deems appropriate.
15
The following table sets forth additional information with respect to
options granted under our Year 2001 Stock Option Plan as of October 27, 2004.
Number of Shares Subject to Weighted Average
the Options Granted under Exercise Price
2001 Plan Per Share
Name
Yi Ping Chan 202,800 $4.65
Jeffrey Barocas 50,000 $1.17
Executive Group
(2 persons)
Non-Executive Director Group 110,000 $3.83
(4 persons)
Non-Executive Officer
Employee Group 370,800 $3.47
(40 persons)
----------
The 2001 Plan is not a qualified deferred compensation plan under Section 401(a)
of the Code, and is not subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended.
PROPOSAL 2. RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We are asking our shareholders to ratify our appointment of Berkovits,
Lago, & Company, LLP as our independent certified public accountants for the
fiscal year ended March 31, 2005. 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 of Berkovits, Lago, & Company, LLP as our independent auditor
on October 15, 2004. Our previous auditor Grant Thornton, LLP were engaged as
our independent auditor on March 27, 2003 and audited our consolidated financial
statements for the fiscal year ended March 31, 2004 and 2003. 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 Company by Grant
Thornton LLP for professional services rendered for the fiscal years ended March
31, 2004 and 2003:
FISCAL 2004 FISCAL 2003
FEE CATEGORY
------------- --------------
Audit Fees $180,532 $130,767
Audit-Related Fees 37,100 --
Tax Fees 103,958 56,261
All Other Fees 5,041 --
------------- --------------
Total Fees $326,631 $187,028
============= ==============
16
(1) Consists of fees billed for professional services rendered for the audit of
the Company's consolidated financial statements for the fiscal year ended March
31, 2004.
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 Berkovits, Lago, & Company, LLP,
as our independent certified public accountants for the fiscal year ended March
31, 2005, 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, & Company, LLP, as our independent auditors for
the fiscal year ended March 31, 2005.
PREVIOUS INDEPENDENT AUDITORS
On March 27, 2003, we engaged Grant Thornton as our independent auditor
with respect to the preparation of our financial statements for fiscal 2003 and
2004, and Salberg & Company, P.A. ("Salberg & Company"), our prior independent
auditor on March 24, 2003. Our decision to change accountants was approved by
our Audit Committee on October 15, 2004 and March 24, 2003. As of October 15,
2004 and March 24, 2003, we did not have any change or disagreement with Grant
Thornton and Salberg & Company with respect to the preparation of our financial
statements for the two (2) most recent fiscal years contained in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2003 and 2004.
The report of Salberg & Company on our financial statements for fiscal
2002, fiscal 2001 and all subsequent interim periods, did not contain an adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles for fiscal 2002, fiscal 2001
and all subsequent interim periods. Furthermore, Salberg & Company did not
advise us that:
1) internal controls necessary to develop reliable financial statements
did not exist, or
2) information had come to the attention of Salberg & Company which
made in unwilling to rely upon management's representations or made
it unwilling to be associated with the financial statement prepared
by management, or
3) the scope of the audit should be expanded significantly, or
information had come to the attention of Salberg & Company that they
concluded will, or if further investigated might, materially impact
the fairness or reliability of a previously issued audit report or
the underlying financial statements, or the financial statements
issued or to be issued covering the fiscal periods subsequent to
March 31, 2002 (including information that may prevent it from
rendering an unqualified audit report on those financial statements)
or made in unwilling to rely on management's representations or to
be associated with the financial statements prepared by management
or,
4) information has come to the attention of Salberg & Company that they
have concluded will, or if further investigated might, materially
impact the fairness or reliability of a previously issued audit
report or the underlying financial statements or the financial
statements issued or to be issued covering the fiscal periods
subsequent to March 31, 2002 through March 28, 2003, the date of the
Form 8-K filing reporting our change in accountants, that had not
been resolved to the satisfaction of Salberg & Company or which
would have prevented Salberg & Company from rendering an unqualified
audit report on such financial statements.
17
During fiscal 2002, fiscal 2001 and all subsequent interim periods, there
were no disagreements with Salberg & Company on any matters of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved to the satisfaction of Salberg & Company would
have caused it to make reference to the subject matter of the disagreements in
connection with its reports on these financial statements for those periods. We
did not consult with Grant Thornton regarding the application of accounting
principles to a specific transaction, either completed or proposed, or the type
of audit opinion that might be rendered on our financial statements, and no
written or oral advice was provided by Grant Thornton that was a factor
considered by us in reaching a decision as to the accounting, auditing or
financial reporting issues. There were no disagreements with Grant Thorton
during fiscal 2003.
On October 15, 2004, Grant Thornton LLP resigned as our auditors. The
report of Grant Thornton on our financial statements for the two most recent
fiscal years and all subsequent interim periods, did not contain an adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles for the two most recent fiscal
years and all subsequent interim periods, except that Grant Thornton's opinion
in its report on our financial statements expressed substantial doubt with
respect to our ability to continue as a going concern for the last two fiscal
years.
During our two most recent fiscal years and all subsequent interim
periods, there were no reportable events as the term described in Item
304(a)(1)(v) of Regulation S-K, except for the following:
Management and Grant Thornton, have advised our Audit Committee that
during the course of the audit, they noted deficiencies in internal controls
relating to:
- weakness in our financial reporting process as a result of a lack of
adequate staffing in the accounting department, and
- accounting for consigned inventory and inventory costing.
Grant Thornton has advised the Audit Committee that each of these internal
control deficiencies constitute a material weakness as defined in Statement of
Auditing Standards No. 60. Certain of these internal control weaknesses may also
constitute material weaknesses in our disclosure controls.
During our two most recent fiscal years and all subsequent interim
periods, there were no disagreements with Grant Thornton on any matters of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which, if not resolved to the satisfaction of Grant Thornton
would have caused it to make reference to the subject matter of the
disagreements in connection with its reports on these financial statements for
those periods.
We engaged of Berkovits, Lago, & Company, LLP as our independent auditor
on October 15, 2004. We did not consult with Berkovits, Lago, & Company, LLP
regarding the application of accounting principles to a specific transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on our financial statements, and no written or oral advice was provided
by Berkovits, Lago, & Company, LLP that was a factor considered by us in
reaching a decision as to the accounting, auditing or financial reporting
issues.
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 and don't participate in electronic delivery of proxy materials
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 householded 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 1 (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.
18
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 20, 2005 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.
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
October 28, 2004
19
PROXY CARD
THE SINGING MACHINE COMPANY, INC.
6601 LYONS ROAD, BLDG. A-7
COCONUT CREEK, FL 33073
PROXY
The undersigned hereby constitutes and appoints Jeffrey S. Barocas as Proxy
Agent, with full power of substitution in each, and hereby authorizes the Proxy
Agents to represent and to vote as designated below, all shares of common stock
of the Company held of record by the undersigned on October 18, 2004 at the
Annual Meeting of Stockholders to be held on November 29, 2004, at the Town
Center Marriott Hotel, 5150 Town Center Circle, Boca Raton, Florida 33486, or
any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF THE SINGING MACHINE COMPANY,
INC. This Proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this Proxy will
be voted FOR the nominees listed in Proposal 1 and FOR Proposal 2. The
undersigned stockholder hereby acknowledges receipt of the Notice of Annual
Meeting and Proxy Statement and hereby revokes any proxy or proxies heretofore
given. This proxy may be revoked at any time prior to the Annual Meeting. If you
received more than one proxy card, please date, sign and return all cards in the
accompanying envelope (continued on reverse side).
IMPORTANT--This Proxy must be signed and dated on the reverse side.
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 Marriott Town Center Hotel,
which is located at Boca Center, 5150 Town Center Circle, Boca Raton, Florida on
Monday, November 29, 2004, beginning at 9:30 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2
1. Election of Directors -- FOR WITHHOLD
Nominees:
---------
Bernard Appel [_] [_]
Josef Bauer [_] [_]
Yi Ping Chan [_] [_]
Harvey Judkowitz [_] [_]
--------------------------------------------------------------------------------
(Except nominee(s) written above)
FOR AGAINST ABSTAIN
2. Proposal to ratify Berkovits, Lago, & Company LLP
as Company's independent accountants for fiscal [_] [_] [_]
year 2005
If you plan to attend the Annual Meeting please mark this box [_]
Dated:________________, 2004
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.
EXHIBIT A
THE SINGING MACHINE COMPANY, INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. PURPOSE
The Audit Committee's function is to assist the Board of Directors in
fulfilling its oversight responsibilities by reviewing: the financial reports
and other financial information provided by The Singing Machine Corporation,
Inc. (the "Corporation") to any governmental body, shareholders or the public;
the Corporation's systems of internal controls regarding finance, accounting,
legal compliance and ethics that management and the Board have established; and
the Corporation's auditing, accounting and financial reporting processes
generally. Consistent with this function, the Audit Committee should encourage
continuous improvement of, and should foster adherence to, the Corporation's
policies, procedures and practices at all levels. The Audit Committee's duties
and responsibilities are to:
Serve as an independent neutral and objective party to monitor the
Corporation's financial reporting process and internal control system.
Review and appraise the audit efforts of the Corporation's independent
accountants and internal auditing department.
Provide an open avenue of communication among the independent
accountants, financial and senior management, the internal auditing
department, and the Board of Directors.
The Audit Committee will fulfill these duties by carrying out the activities
enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, a majority of whom shall be independent directors, and
free from any relationship that, in the opinion of the Board, would interfere
with the exercise of his or her independent judgment as a member of the
Committee. A director will not be considered "independent" if, among other
things, he or she has:
o been employed by the corporation or its affiliates in the current or
past three years;
o accepted any compensation from the corporation or its affiliates in
excess of $60,000 during the previous fiscal year (except for board
service, retirement plan benefits, or non- discretionary
compensation);
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o an immediate family member who is, or has been in the past three
years, employed by the corporation or its affiliates as an executive
officer;
o been a partner, controlling shareholder or an executive officer of
any for-profit business to which the corporation made, or from which
it received, payments (other than those which arise solely from
investments in the Corporation's securities) that exceed five
percent of the organization's consolidated gross revenues for that
year, or $200,000, whichever is more, in any of the past three
years; or
o been employed as an executive of another entity where any of the
Corporation's executives serve on that entity's compensation
committee.
All members of the Committee shall have a working familiarity with basic finance
and accounting practices, and at least one member of the Committee shall have
accounting or related financial management expertise. Committee members may
enhance their familiarity with finance and accounting by participating in
educational programs conducted by the Corporation or an outside consultant.
The members of the Committee shall be elected by the Board at the director's
meeting, following the annual shareholders meeting, or at any other time that it
is necessary to elect a success to the Committee. Unless a Chair is elected by
the full Board, the members of the Committee may designate a Chair by majority
vote of the full Committee membership.
III. MEETINGS
The Committee shall meet at least four times annually, and at least
once per fiscal quarter, or more frequently as circumstances dictate. As part of
its job to foster open communication, the Committee should meet at least be
annually with management, the director of the internal auditing department and
the independent accountants in separate executive sessions to discuss any
matters that the Committee or each of these groups believe should be discussed
privately. In addition, the Committee or at least its Chair should meet with the
independent accountants and management quarterly to review the Corporations
financials.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
1. Review and update this Charter periodically, and not less than
annually, as conditions dictate.
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2. Review the Corporation's annual financial statements and any reports
or other financial information submitted to any governmental body,
or the public, including any certification, report, opinion, or
review rendered by the independent accountants.
3. Review regular internal reports to management prepared by the
internal auditing department and management's response.
4. Review with financial management and the independent accountants the
Quarterly Reports on Form10-QSB prior to their filing or prior to
the release of earnings. If the entire committee is unavailable, the
Chair of the Committee may represent the entire Committee for
purposes of this review.
Independent Accountants
5. Recommend to the Board of Directors the selection of the independent
accountants, considering their independence and their effectiveness,
and approve the fees and other compensation to be paid to the
independent accountants.
6. On an annual basis, the Committee should review and discuss with the
accountants all significant relationships the accountants have with
the Corporation to determine the accountants' independence. The
accountants shall provide the Corporation with a formal written
statement delineating all relationships between the accountants and
the Corporation, consistent with Independence Standards Board
Standard 1.
7. The Committee has a responsibility for actively engaging in a
dialogue with the independent accountants with respect to any
disclosed relationships or services that may impact the objectivity
and independence of the accountant and for taking, or recommending
that the full board take, appropriate action to oversee the
independence of the independent accountant.
8. The independent accountant's ultimate accountability is to the Board
of Directors and the Committee, as representatives of the
shareholder, and the Committee, as the shareholder's representative,
has ultimate authority and responsibility to select, evaluate and
where, appropriate, replace the independent accountant (or to
nominate the outside auditor to be proposed for shareholder approval
in the proxy statement).
9. Review the performance of the independent accountants and approve
any proposed discharge of the independent accountants when
circumstances warrant.
10. Periodically consult with the independent accountants out of the
presence of management about internal controls and the fullness and
accuracy of the organization's financial statements and disclosure.
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Financial Reporting Processes
11. In consultation with the independent accountants and the internal
auditors, review the internal and external integrity of the
organization's financial reporting processes.
12. Consider the independent accountants' judgments about the quality
and appropriateness of the Corporation's accounting principles as
applied in its financial reporting.
13. Consider and approve, if appropriate, major changes to the
Corporation's auditing and accounting principles and practices as
suggested by the independent accountants, management, or the
internal auditing department.
Process Improvement
14. Establish regular and separate systems of reporting to the Audit
Committee by each of management, the independent accountants and the
internal auditors regarding any significant judgments made in
management's preparation of the financial statements and the view of
each as to appropriateness of such judgments.
15. Following completion of the annual audit, review separately with
each of management, the independent accountants and the internal
auditing department any significant difficulties encountered during
the course of the audit, including any restrictions on the scope of
work or access to required information.
16. Review any disagreement among management and the independent
accountants or the internal auditing department in connection with
the preparation of the financial statements.
17. Review with the independent accountants, the internal auditing
department and management the extent to which changes or
improvements in financial or accounting practices, as approved by
the Audit Committee, have been implemented. (This review should be
conducted at an appropriate of time subsequent to implementation of
changes or improvements, as decided by the Committee.)
Ethical and Legal Compliance
18. Establish, review and update periodically a Code of Ethical Conduct
and ensure that management has established a system to enforce this
Code.
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19. Review management's monitoring of the Corporation's compliance with
the organization's Code of Ethical Conduct, and ensure that
management has the proper review system in place to ensure that
Corporation's financial statements, reports and other financial
information disseminated to governmental organizations, and the
public satisfy legal requirements.
20. Review activities, organizational structure, and qualifications of
the internal audit department.
21. Review, with the organization's counsel, legal compliance matters
including corporate securities trading policies.
22. Review, with the Corporation's counsel, any legal matter that could
have a significant impact on the organization's financial
statements.
23. Perform any other activities consistent with this Charter, the
Corporation's Bylaws and governing law, as the Committee or, the
Board deems necessary or appropriate.
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