(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 o
Check
the
appropriate box:
o
Preliminary Proxy
Statement
o
Confidential, For Use of the Commission
Only (As Permitted by Rule
14a-6(e)(2))
x
Definitive Proxy Statement
o
Definitive Additional Materials
o
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
o
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:
o
Fee paid previously with preliminary
materials.
o
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
12, 2006
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 Friday, January
12,
2007 at 2:00 p.m. EST 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.
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Sincerely,
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/s/
Josef Bauer
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Josef
Bauer
Chairman
of the Board
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THE
SINGING MACHINE COMPANY, INC.
6601
Lyons Road, Bldg. A-7
Coconut
Creek, Florida 33073
(954)
596-1000
To
Our Stockholders:
Our
Annual Meeting of Stockholders of the Company will be held on Friday, January
12, 2007 at 2:00 p.m. EST 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 seven directors to serve until the next Annual Meeting of Shareholders
and
until their successors shall be elected and qualified (Proposal No. 1);
2.
To
ratify the appointment of Berkovits, Lago & Company, LLP, as the Company's
independent certified public accountants for the fiscal year ending March 31,
2007 (Proposal No. 2); and
3.
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 6, 2006 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 12, 2006, 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 6, 2006, 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.
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By
Order of the Board of Directors
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Josef
Bauer
Chairman
of the Board
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Coconut
Creek, Florida
December
12, 2006
TABLE
OF CONTENTS
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Page
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INFORMATION
ABOUT THE ANNUAL MEETING AND VOTING
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5
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Purpose
of the Annual Meeting
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5
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Outstanding
Securities and Voting Rights
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5
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Proxy
Voting
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5
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Attendance
and Voting at the Annual Meeting
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6
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Revocation
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6
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Vote
Required to Approve Each Proposal
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6
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MANAGEMENT
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6
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CORPORATE
GOVERNANCE AND RELATED MATTERS
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7
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Board
Committees and Meetings
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7
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Board
Committees
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7
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Director's
Compensation
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9
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INFORMATION
ABOUT THE EXECUTIVE OFFICERS
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9
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Executive
Compensation
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9
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Report
of the Executive Compensation/Stock Option Committee on Executive
Compensation
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13
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Security
Ownership of Certain Beneficial Owners and Management
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15
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Certain
Relationships and Related Transactions
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16
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Audit
Committee Report
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17
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DISCUSSION
OF PROPOSAL ITEMS RECOMMENDED BY THE BOARD
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18
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ITEM
1--ELECTION OF DIRECTORS
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18
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ITEM
2--RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
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19
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ANNUAL
REPORT ON FORM 10-K
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20
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STOCKHOLDERS
SHARING THE SAME LAST NAME AND ADDRESS
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20
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INFORMATION
CONCERNING SHAREHOLDER PROPOSALS
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20
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PROXY
SOLICITATION COSTS
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20
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OTHER
MATTERS
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20
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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.
THE
SINGING MACHINE COMPANY, INC.
6601
Lyons Road, Bldg. A-7
Coconut
Creek, Florida 33073
(954)
596-1000
FOR
ANNUAL MEETING
OF
SHAREHOLDERS
To
Be Held January 12, 2007
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 2007 Annual Meeting of Shareholders, and at any postponement or
adjournment of this meeting. Our Annual Meeting will be held on January 12,
2007
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 12, 2006.
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 and ratification of the appointment of our independent auditors.
In
addition, management will report on the performance of the Company during fiscal
year 2006 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
6,
2006, the record date, will be entitled to notice of, and to vote at the Annual
Meeting. On that date, we had 25,274,883 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, 25,274,883 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 12,637,442 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 and "FOR" Proposal 2 - the ratification
of
Berkovits, Lago and Company, LLP as our independent certified public accountants
for the fiscal year ending March 31, 2007. 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.
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.
Ratification
of the appointment of Berkovits, Lago and Company, LLP as the Company's
independent auditors for fiscal year 2007, will 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.
The
following table sets forth certain information with respect to our executive
officers and directors as of December 12, 2006:
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NAME
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AGE
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POSITION
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Yi
Ping Chan
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42
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Interim
Chief Executive Officer, Chief Operating Officer, Secretary and
Director
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Danny
Zheng
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37
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Chief
Financial Officer
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Josef
A. Bauer
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67
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Director
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Bernard
Appel
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74
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Director
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Harvey
Judkowitz
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61
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Director
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Marc
Goldberg
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62
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Director
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Stewart
Merkin
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63
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Director
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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 United States. 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 United States.
He
also worked as a business development analyst for Allied Signal Inc. (now part
of Honeywell Corp.) doing joint venture 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.
Danny
Zheng
has been
part of the Singing Machine management team since April 2004 and has served
as
financial controller and principal accounting officer until April 5, 2005 when
he became the Chief Financial Officer of the Singing Machine. Mr. Zheng 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
was
also employed by a New York regional CPA firm as tax consultant for 4 years.
Mr.
Zheng 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. Mr. Zheng 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 has served as the Chairman and CEO of UniPro Financial Services,
a
diversified financial services company up until the company was sold in
September of 2005.He presently is the Chairman of AHM Financial Services Inc.,
a
start-up management company.
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, Human Resources at Mobile Telecommunication Technologies. He also
served as an organization design consultant for The Mescon Group, Inc., Vice
President, Human Resources at Contel Business Systems/Executone, Inc., and
Manager, 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 as 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
2006, there were 13 meetings of the Board. All persons who were serving as
directors during fiscal 2006 attended at least 75% of the aggregate of the
meetings of the Board and committees of which they were members. During fiscal
2006, 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 12, 2006, the persons serving on our Board are Jay Bauer, Yi Ping
Chan,
Bernard Appel, Harvey Judkowitz, Marc Goldberg and Stewart Merkin.
Board
Committees
We
have
an audit committee, an executive compensation/stock option committee and a
nominating committee.
Audit
Committee.
As of
December 12, 2006, 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 2006, the Audit Committee held 2 meetings.
Executive
Compensation/Stock Option Committee.
As of
December 12, 2006, 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 2006, the Executive Compensation/Stock
Option Committee held 3 meetings, including
breakout sections during regular board meeting.
Nominating
Committee.
As of
December 12, 2006, 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 fiscal 2006, the Nominating Committee held 1 meeting.
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:
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high
personal and professional ethics and integrity;
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the
ability to exercise sound judgment;
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the
ability to make independent analytical inquiries;
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a
willingness and ability to devote adequate time and resources to
diligently perform Board and committee duties; and
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the
appropriate and relevant business experience and acumen.
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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:
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whether
the person possesses specific industry expertise and familiarity
with
general issues affecting our business;
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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;
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whether
the person would qualify as an "independent" director under the listing
standards of the American Stock Exchange;
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the
importance of continuity of the existing composition of the Board
of
Directors to provide long term stability and experienced oversight;
and
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the
importance of diversified Board membership, in terms of both the
individuals involved and their various experiences and areas of expertise.
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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:
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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.
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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.
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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.
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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.
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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.
During
fiscal 2006, 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 2006 were Messrs. Bauer, Appel, Judkowitz, Goldberg
and
Merkin.
During
fiscal 2006, we have implemented the following compensation policy for our
directors:
| · |
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.
|
| · |
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.
|
| · |
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.
|
| · |
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.
|
| · |
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.
|
| · |
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, 2006, its officers,
directors and 10% shareholders complied with all Section 16(a) filing
requirements.
The
following table sets forth certain compensation information for the fiscal
years
ended March 31, 2006, 2005 and 2004 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
|
|
|
Name
of Individual and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Other
Annual Compensation(1)
|
|
Securities
Underlying Options / SAR’s
|
|
All
Other Compensation(2)
|
|
|
Yi
Ping Chan
|
|
|
2006
|
|
$
|
250,000
|
|
|
|
|
$
|
6,000
|
|
|
80,000
|
|
$
|
14,560
|
|
|
Interim
CEO & COO
|
|
|
2005
|
|
$
|
246,038
|
|
|
-
|
|
$
|
6,000
|
|
|
-
|
|
$
|
4,560
|
|
| |
|
|
2004
|
|
|
247,470
|
(5)
|
|
-
|
|
$
|
6,000
|
|
|
52,800
|
|
$
|
12,180
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward
Steele
|
|
|
2006
|
|
$
|
203,548
|
|
|
|
|
$
|
5,417
|
|
|
50,000
|
|
$
|
5,060
|
|
|
Former
Chief Executive Officer (3)
|
|
|
2005
|
|
$
|
249,038
|
|
|
-
|
|
$
|
6,500
|
|
|
-
|
|
$
|
6,000
|
|
| |
|
|
2004
|
|
$
|
372,809
|
(5)
|
|
-
|
|
$
|
6,000
|
|
|
10,000
|
|
$
|
17,949
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Danny
Zheng
|
|
|
2006
|
|
$
|
127,297
|
|
$
|
12,000
|
|
$
|
6,000
|
|
|
100,000
|
|
|
-
|
|
|
Chief
Financial Officer (4)
|
|
|
2005
|
|
$
|
84,884
|
|
|
-
|
|
|
0
|
|
|
12,000
|
|
$
|
3,420
|
|
(1)
The
amounts disclosed in this column for fiscal 2006, 2005 and 2004 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. He serves as our Senior Advisor and Director of Product Development
since then. Mr. Steele resigned on July 18, 2005. His fiscal 2006 salary
includes $125,000 severance payment.
(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)
Effective as of August 1, 2003, Mr. Chan 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 and Mr. Steele received compensation in the
amount of $20,125 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.
The
following table sets forth information concerning all options granted to our
officers and directors during the year ended March 31, 2006. No stock
appreciation rights ("SAR's") were granted.
| |
|
SHARES
UNDERLYING OPTIONS GRANTED (1)
|
|
TOTAL
OPTIONS GRANTED TO EMPLOYEES IN FISCAL YEAR
|
|
EXERCISE
PRICE PER SHARE
|
|
EXPIRATION
DATE
|
|
POTENTIAL
REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION
FOR
OPTION TERM
|
|
| |
|
|
|
|
|
|
|
|
|
5%
(2)
|
|
10%
(2)
|
|
|
Bernard
Appel
|
|
|
20,000
|
|
|
2
|
%
|
|
0.32
|
|
|
03/30/16
|
|
|
10,425
|
|
|
16,600
|
|
|
Danny
Zheng
|
|
|
70,000
|
|
|
8
|
%
|
|
0.52
|
|
|
05/08/15
|
|
|
59,292
|
|
|
94,412
|
|
|
Danny
Zheng
|
|
|
30,000
|
|
|
4
|
%
|
|
0.34
|
|
|
01/19/11
|
|
|
16,615
|
|
|
26,456
|
|
|
Eddie
Steele
|
|
|
50,000
|
|
|
6
|
%
|
|
0.60
|
|
|
Cancelled
(3
|
)
|
|
48,867
|
|
|
77,812
|
|
|
Harvey
Judkowitz
|
|
|
20,000
|
|
|
2
|
%
|
|
0.32
|
|
|
03/30/16
|
|
|
10,425
|
|
|
16,600
|
|
|
Jay
Bauer
|
|
|
20,000
|
|
|
2
|
%
|
|
0.32
|
|
|
03/30/11
|
|
|
10,425
|
|
|
16,600
|
|
|
Marc
Goldberg
|
|
|
20,000
|
|
|
2
|
%
|
|
0.32
|
|
|
03/30/16
|
|
|
10,425
|
|
|
16,600
|
|
|
Stewart
Merkin
|
|
|
20,000
|
|
|
2
|
%
|
|
0.32
|
|
|
03/30/16
|
|
|
10,425
|
|
|
16,600
|
|
|
Yi
Ping Chan
|
|
|
80,000
|
|
|
10
|
%
|
|
0.60
|
|
|
05/08/15
|
|
|
78,187
|
|
|
124,500
|
|
(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
vested in one year, on March 31, 2006 according to director compensation policy.
The Options granted to Mr. Chan and Mr. Zheng vested in three
years.
(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.
Steele received a grant of 50,000 options on May 9, 2005. These options expired
on October 18, 2005 ninety days after Mr. Steele resigned from our company.
The
following table sets forth information as to the exercise of stock options
during the fiscal year ended March 31, 2006 by our officers listed in our
Summary Compensation Table and the fiscal year-end value of unexercised options.
|
NAME
OF INDIVIDUAL
|
|
SHARES
ACQUIRED UPON EXERCISE
|
|
VALUE
REALIZED(1)
|
|
NUMBER
OF UNEXERCISED OPTIONS AT FISCAL YEAR END EXERCISABLE /
UNEXERCISABLE
|
|
VALUE
OF UNEXERCISED IN-THE-MONEY OPTIONS AT FISCAL YEAR END (2)EXERCISABLE
/
UNEXERCISABLE
|
|
|
Yi
Ping Chan
|
|
|
—
|
|
|
|
|
|
35,200/97,600
|
|
|
0/0
|
|
|
Danny
Zheng
|
|
|
|
|
|
|
|
|
4,800/107,200
|
|
|
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. The contract expired
as of March 31, 2006.
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, 2006, we had 20,550 options issued and outstanding
under our 1994 Plan and 1,279,560 options 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.
|
PLAN
CATEGORY
|
|
NUMBER
OF SECURITIES TO BE ISSUED
UPON
EXERCISE
OF OUTSTANDINGS OPTION, WARRANTS AND RIGHTS
|
|
WEIGHTED-AVERAGE
EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS
|
|
NUMBER
OF SECURITIES REMAINING AVAILABLE FOR EQUITY COMPENSATION PLANS (EXCLUDING
SECURITIES IN COLUMN (A))
|
|
|
Equity
Compensation Plans approved by Security Holders
|
|
|
1,300,110
|
|
$
|
3.52
|
|
|
992,940
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Equity
Compensation Plans Not approved by Security Holders
|
|
|
0
|
|
|
0
|
|
|
0
|
|
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
March 31, 2006, we have 20,550 options issued and outstanding under the 1994
Plan and all of these options are fully vested as of March 31, 2006.
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, 2006, we have granted 1,279,560 options under the Year
2001
Plan, 371,611 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, 2006,
2005 and 2004 totaled approximately $39,572, $30,025 and $55,402, respectively.
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 2006, we had an 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 2006 are listed below.
Yi
Ping
Chan served as our Chief Operating Officer since May 2, 2003 and Interim Chief
Executive Officer since October 17, 2003 through the present date.
Danny
Zheng 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 2006, we awarded a $12,000 bonus to Mr. Zheng, our Chief
Financial Officer.
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 2006, we granted an aggregate of 330,000 options to our senior executive
officers. All options grants in fiscal 2006 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. Mr. Chan has voluntarily cancelled the 150,000 options on May
10,
2006.
We
did
not grant any cash bonuses to Mr. Chan in fiscal 2006.
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. We awarded 80,000 stock options to Mr. Chan at exercise price of $0.60
on
May 9, 2005. We award 120,000 stock options to Mr. Chan on April 10, 2006.
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 are vested from one to three years.
The
Executive Compensation Committee
Marc
Goldberg (Chairman) /s/
Jay
Bauer
/s/
Harvey
Judkowitz /s/
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The
members of our Executive Compensation Committee in the fiscal year ended March
31, 2006 were Messrs. Goldberg, Judkowitz and Bauer. None of the members of
the
Compensation Committee in fiscal 2006 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.
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,
2001
through March 31, 2006. The graph assumes the investment of $100 on March 31,
2001 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.
| |
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Singing Machine Company
|
|
|
100.00
|
|
|
333.13
|
|
|
146.67
|
|
|
24.38
|
|
|
15.83
|
|
|
6.67
|
|
|
Dow
Jones Consumer Electronics Index
|
|
|
100.00
|
|
|
82.80
|
|
|
52.86
|
|
|
83.23
|
|
|
50.10
|
|
|
121.44
|
|
|
AMEX
Market Index
|
|
|
100.00
|
|
|
99.18
|
|
|
94.72
|
|
|
84.13
|
|
|
67.24
|
|
|
64.83
|
|
OWNERS
AND MANAGEMENT
The
following table sets forth as of December 12, 2006, certain information
concerning beneficial ownership of our common stock by:
| · |
all
directors of the Company,
|
| · |
all
executive officers of the Company.
|
| · |
persons
known to own more than 5% of our common stock;
|
We
had
25,274,883 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 Common Stock (1)
|
|
Percent
of Common Stock (2)
|
|
| |
|
|
|
|
|
|
Yi
Ping Chan
|
|
|
104,924
|
|
|
1.04
|
%
|
|
Interim
CEO snd Chief Operating
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Danny
Zheng
|
|
|
30,533
|
|
|
*
|
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Joseph
Bauer
|
|
|
1,229,230
|
|
|
12.22
|
%
|
|
Chairman
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Bernard
Appel
|
|
|
40,000
|
|
|
*
|
|
|
Director
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Harvey
Judkowitz
|
|
|
40,000
|
|
|
*
|
|
|
Director
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Marc
Goldberg
|
|
|
20,000
|
|
|
*
|
|
|
Director
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Stewart
Merkin
|
|
|
20,000
|
|
|
*
|
|
|
Director
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Target
Capital
|
|
|
755,600
|
|
|
7.51
|
%
|
| |
|
|
|
|
|
|
|
|
All
Directors and Executive Officers as a Group
|
|
|
1,484,687
|
|
|
14.76
|
%
|
*
Less
than 1%.
(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
June
30, 2006: 61,867 options held by Yi Ping Chan; 30,533 options held by Danny
Zheng; 79,827 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 and 20,000 options held by Stewart Merkin.
(2)
Includes 126,913 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 79,827 issuable upon the exercise of stock options that
can
be exercisable within 60 days of June 30, 2006.
On
or
about July 10, 2003, an officer and two directors of our Company advanced $1
million to our Company pursuant to written loan agreements. The officer is
Yi
Ping Chan and the directors were Josef A. Bauer and Howard Moore. Mr. Moore
resigned from our Board, effective as of October 17, 2003. Additionally, Maureen
LaRoche, a business associate of Mr. Bauer, participated in the financing.
The
loans are subordinated to the factoring company and accrued interest at 9.5%
per
annum. These loans were originally scheduled to be repaid by October 31, 2003,
but were extended past March 31, 2006. All interest was accrued, and the unpaid
amount totaled approximately $9,500. A portion of the loans and the accrued
interest in the amount of $409,500 has been converted into 563,274 shares of
common stock at $0.72 per share on January 5, 2005. In addition, another portion
of the loans in the amount of $200,000 has been converted into 277,778 shares
of
common stock on May 18, 2005. On November 30, 2005, Maureen LaRoche was repaid
$107,917 ($100,000 principle and $7,917 interest). The balance of related party
loan as of March 31, 2006 was $300,000. According to the Starlight Security
Purchase Agreement dated on February 21, 2006, the company might use $50,000
from $3 million investment to retire part of the loans. The remainder of the
loan will be extended for 3 years at an interest rate of 5.5%.
On
June
27, 2005, the Company received a $200,000 loan from Andrew Shapiro, a relative
of Mr. Bauer. The interest rate on the loan is 12% per annum and is due on
November 30, 2005 or such later date as mutually agreed between the parties.
The
loan was repaid on November 29, 2005 with interest.
On
June
2, 2006, the Company received a $200,000 loan from Andrew Shapiro, a relative
of
Mr. Bauer. The interest rate on the loan is 8% per annum and is due on June
20,
2006 or such later date as mutually agreed between the parties. The loan was
repaid on June 30, 2006 with interest.
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 2006, all of the Audit
Committee members were non-employee directors and were independent as defined
by
the AMEX listing standards in effect during fiscal 2006. The members of the
Audit Committee during fiscal 2006 were Harvey Judkowitz, Bernard Appel and
Stewart Merkin. Mr. Judkowitz served as the Chairman of the Audit Committee.
In
discharging its duties during fiscal 2006, 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, 2006.
Audit
Committee
/s/
Harvey Judkowitz, Chairman
/s/
Bernard Appel
/s/
Stewart
Merkin
PROPOSALS
TO THE STOCKHOLDERS
The
seven
persons set below are proposed to be elected as directors at the Annual Meeting.
If elected, each of these directors will hold office until the next Shareholder
meeting in 2008 or until his or her successor is duly elected and qualified.
Bernard
Appel
Josef
Bauer
Peter
Hon
Harvey
Judkowitz
Carol
Lau
Yat
Tung
Lau
Stewart
Merkin
Each
nominee has agreed to be named in this Proxy Statement and to serve as a
director if elected. For biographical information regarding the following
nominees: Bernard Appel, Josef Bauer, Harvey Judkowitz and Stewart Merkin,
see
the "Management" Section of this Proxy Statement.
The
remaining biographical information is as follows:
Carol
Lau
joined the Starlight Group in 1987 and was appointed to the position of
President of Starlight Randix Corporation, a wholly owned subsidiary of the
Starlight group in 1993. In 2001, she became the Chief Financial Officer of
Cosmo Communications Corporation. Prior to joining the Starlight group, from
1978 to 1987 Ms Lau held positions in auditing and financial management with
the
Australian Government. Ms. Lau was a CPA in Australia and is a licensed CPA
in
Massachusetts. She holds a Bachelor of Business degree from the Curtin
University in Australia and a Graduate Diploma in Computer Science from the
Canberra University in Australia.
Yat
Tung
Lau joined the Starlight group in 2003 as assistant to the Chairman of the
Board
of the Starlight group and is now head of corporate relations. He is also
responsible for local sales in China and heads the computer information system
department for the group. From 2002 to 2003, he held a marketing executive
position in Storage Technology Corporation. Mr. Lau holds a Bachelor of Art
degree in business marketing from Indiana University.
Peter
Hon
has been a non-executive of the Starlight group since 1998. Mr. Hon passed
the
College of Law qualifying examination in 1969 in the United Kingdom and began
practicing law in Hong Kong in that year after being admitted to the High Court
of Hong Kong. He is the principal of Hon and Co, a law firm in Hong Kong in
the
past 37 years.
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 seven 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.
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, 2007. 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 and March 31,
2006.
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.
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, 2006 and 2005:
|
Fee
Category
|
|
Fiscal
2006
|
|
Fiscal
2005
|
|
| |
|
|
|
|
|
|
Audit
Fees
|
|
$
|
155,193
|
|
$
|
289,790
|
|
|
Tax
Fees
|
|
$
|
0
|
|
$
|
33,543
|
|
|
All
Other Fees
|
|
$
|
1,500
|
|
$
|
12,938
|
|
| |
|
|
|
|
|
|
|
|
Total
Fees
|
|
$
|
156,693
|
|
$
|
336,271
|
|
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 2006 and fiscal 2005, these services included general
business meetings between auditors, and executives and directors of The Singing
Machine.
Out
of
the total fiscal 2006 and fiscal 2005 audit and other fees, $151,943 and $86,219
were billed by Berkovits, Lago and Co., LLP, respectively.
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, 2007, 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, 2007.
ANNUAL
REPORT ON FORM 10-K
We
are
mailing copies of our Annual Report on Form 10-K for the year ended March 31,
2006 with this proxy statement to our shareholders of record as of December
6,
2006.
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, 2007 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.
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
12, 2006
PROXY
CARD
THE
SINGING MACHINE COMPANY, INC.
PROXY
FOR ANNUAL MEETING TO BE HELD ON JANUARY 12, 2007
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned hereby appoints Josef Bauer, 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 12, 2007 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.
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
Friday, January 12, 2007, beginning at 2:00 p.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 &
2
|
1.
Election of Directors
|
FOR
|
WITHHOLD
|
|
Nominees:
|
|
|
|
Bernard
Appel
|
o
|
o
|
|
Josef
Bauer
|
o
|
o
|
|
Peter
Hon
|
o
|
o
|
|
Harvey
Judkowitz
|
o
|
o
|
|
Carol
Lau
|
o
|
o
|
|
Yat
Tung Lau
|
o
|
o
|
|
Stewart
Merkin
|
o
|
o
|
(Except
nominee(s) written above)
| |
FOR
|
AGAINST
|
ABSTAIN
|
|
2.
Proposal to ratify Berkovits Lago &
Company, LLP as the Company’s independent auditors
for fiscal year 2007
|
|
|
|
|
|
|
If
you plan to attend the Annual Meeting please mark this box
|
o
|
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.