As
filed
with the Securities and Exchange Commission on January 5,
2007
Registration
Number 333-138188
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Amendment
No. 1 to
FORM
S-3
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
THE
SINGING MACHINE COMPANY, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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93-3795478
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(State
or other jurisdiction
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(I.R.S.
Employer
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of
incorporation or organization)
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Identification
No.)
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6601
Lyons Road, Bldg. A-7
Coconut
Creek, Florida 33073
(954)
596-1000
(Address,
including zip code, and telephone number, including area code of registrant’s
principal executive offices)
Danny
Zheng
Interim
Chief Executive Officer
The
Singing Machine Company, Inc.
6601
Lyons Road, Bldg. A-7
Coconut
Creek, Florida 33073
(954)
596-1000
(Name,
address, including zip code, and telephone number, including area code of agent
for service)
Copies
to:
Darrin
M.
Ocasio, Esq.
Eric
A.
Pinero, Esq.
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of the Americas, 21 st
Floor
New
York,
New York 10018
(212)
930-9700
Fax:
(212) 930-9725
Approximate
date of commencement of proposed sale to the public: From time to time after
the
effective date of this Registration Statement.
If
the
only securities being registered on this form are to be offered pursuant to
dividend or interest reinvestment plans, please check the following box.
o
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. x
If
this
form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If
this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
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Title
of each class of
securities
to be registered
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Amount
to be
registered
(1)
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Proposed
maximum
offering
price
per share (2)
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Proposed
maximum
aggregate
offering
price
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Amount
of
registration
fee
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Common
stock, $.01 par value
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9,882,464
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$
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0.33
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$
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3,261,213.12
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$
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348.95
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Total
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9,882,464
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$
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3,261,213.12
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$
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348.95*
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*
Previously paid.
(1)
Includes shares of our common stock, par value $0.01 per share, which may be
offered pursuant to this registration statement.
(2)
Estimated solely for purposes of calculating the registration fee in accordance
with Rule 457(c) under the Securities Act of 1933, using the average of the
sale
prices as reported on the American Stock Exchange on October 24, 2006, which
was
$0.33 per share.
The
registrant hereby amends this registration statement on such date or date(s)
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the commission acting pursuant to said Section
8(a) may determine.
THE
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
PRELIMINARY
PROSPECTUS, SUBJECT TO COMPLETION, DATED JANUARY 5,
2007
Registration
No. 333-138188
The
Singing Machine Company, Inc.
9,882,464 SHARES
OF
COMMON
STOCK
This
prospectus relates to the resale by the selling stockholders, who invested
in
our common stock in July 2006 and August 2006, of up to 9,882,464
shares
of our common stock. The selling stockholders may sell common stock from
time to
time in the principal market on which the stock is traded at the prevailing
market price or in negotiated transactions.
The
selling stockholders may be deemed underwriters of the shares of common stock,
which they are offering. We will pay the expenses of registering these shares.
We will not receive any proceeds from the sale of shares of common stock
in this
offering. All of the net proceeds from the sale of our common stock will
go to
the selling stockholders
Our
common stock is registered under Section 12(b) of the Securities Exchange Act
of
1934 and is listed on the American Stock Exchange under the symbol "SMD". The
last reported sales price per share of our common stock as reported by the
American Stock Exchange on October 24, 2006, was $0.33 per share.
INVESTING
IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS
SEE
"RISK FACTORS" BEGINNING ON PAGE 7.
The
date
of this Prospectus is January ____, 2007
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined whether this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
TABLE
OF CONTENTS
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Where
You Can Find More Information
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5
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Incorporation
of Documents By Reference
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5
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Summary
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6
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Risk
Factors
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7
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Forward-Looking
Statements
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12
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Use
of Proceeds
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13
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Selling
Stockholders
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13
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Plan
of Distribution
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14
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Description
of Securities Being Registered
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16
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Legal
Matters
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16
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Experts
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16
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You
may
only rely on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with different
information. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the common stock
offered by this prospectus. This prospectus does not constitute an offer to
sell
or a solicitation of an offer to buy any common stock in any circumstances
in
which such offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any sale made in connection with this prospectus shall, under
any
circumstances, create any implication that there has been no change in our
affairs since the date of this prospectus or that the information contained
by
reference to this prospectus is correct as of any time after its
date.
WHERE
YOU CAN FIND MORE INFORMATION
We
have
filed a registration statement on Form S-3 under the Securities Act of 1933,
as
amended, relating to the shares of common stock being offered by this
prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of The Singing Machine Company, Inc.,
filed as part of the registration statement, and it does not contain all
information in the registration statement, as certain portions have been omitted
in accordance with the rules and regulations of the Securities and Exchange
Commission.
We
are
subject to the informational requirements of the Securities Exchange Act of
1934
that require us to file reports, proxy statements and other information with
the
Securities and Exchange Commission. Such reports, proxy statements and other
information may be inspected at public reference facilities of the SEC at 100
F
Street N.E. Washington, D.C. 20549. Copies of such material can be obtained
from
the Public Reference Section of the SEC at 100 F Street N.E. Washington, D.C.
20549 at prescribed rates. The public could obtain information on the operation
of the public reference room by calling the Securities and Exchange Commission
at 1-800-SEC-0330. Because we file documents electronically with the SEC, you
may also obtain this information by visiting the SEC's Internet website at
http://www.sec.gov.
The
SEC
allows us to 'incorporate by reference' the information into this prospectus.
This means that we can disclose important information to you by referring you
to
another document filed separately with the SEC. The information that we
incorporate by reference is considered to be part of this prospectus. Because
we
are incorporating by reference our future filings with the SEC, this prospectus
is continually updated and those future filings may modify or supersede some
or
all of the information included or incorporated in this prospectus. This means
that you must look at all of the SEC filings that we incorporate by reference
to
determine if any of the statements in this prospectus or in any document
previously incorporated by reference have been modified or superseded. This
prospectus incorporates by reference the documents listed below and any future
filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of
the Securities Exchange Act of 1934 until the selling stockholders sell all
of
our common stock registered under this prospectus.
●
our
annual report on Form 10-K for the fiscal year ended March 31, 2006 filed
with the SEC on July 14, 2006;
●
our
quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2006 filed
with the SEC on August 14, 2006;
●
our
quarterly report on Form 10-Q for the fiscal quarter ended September 30,
2006
filed with the SEC on November 20, 2006;
●
our
current reports on Form 8-K filed on December 22, 2006, October 6, 2006,
October
4, 2006, September 6, 2006, August 14, 2006, July 31, 2006, and July 25,
2006;
and
● the
description of our common stock contained in our Registration Statement on
Form
8-A filed with the SEC on March 2, 2001.
The
information about us contained in this prospectus should be read together with
the information in the documents incorporated by reference. You may request
a
copy of any or all of these filings, at no cost, by writing or telephoning
us at
The Singing Machine Company, Inc., 6601 Lyons Road, Bldg. A-7, Coconut Creek,
Florida 33073, Telephone: (954) 596 -1000.
This
summary highlights information contained elsewhere in this prospectus. You
should read the entire prospectus carefully, including, the section entitled
"Risk Factors" before deciding to invest in our common stock. The Singing
Machine Company, Inc. is referred to throughout this prospectus as "we", “our”
or "us."
Our
subsidiary and we are primarily engaged in the design, marketing, and sale
of
consumer karaoke audio equipment, accessories, and musical recordings. Our
products are sold directly to distributors and retail customers. Our electronic
karaoke machines and audio software products are marketed under The Singing
Machine(R), Bratz, MTV, Nickelodeon and Motown trademarks. Our products are
sold
throughout the United States and Europe, primarily through department stores,
lifestyle merchants, mass merchandisers, direct mail catalogs and showrooms,
music and record stores, national chains, specialty stores and warehouse clubs.
Our karaoke machines and karaoke software are currently sold in such major
retail outlets as Best Buy, Costco, Kohl's, J.C. Penney, Radio Shack, Wal-Mart
and Sam's Club.
Our
corporate offices are located at 6601 Lyons Road, Building A-7, Coconut Creek,
Florida 33073, and our telephone number is (954) 596- 1000.
August
2006 Securities Purchase Agreement
On
August
9, 2006, we entered into Securities Purchase Agreements with two accredited
and/or institutional investors pursuant to which we agreed to sell and issue
2,300,000 shares of common stock, $.01 par value per share (the "Common Shares")
for an aggregate purchase price of $1,000,500, or a per share purchase price
of
$0.435. Subject to customary closing conditions as specified in the purchase
agreements, the closing of the offering was subject to the approval of the
American Stock Exchange of the listing of the Common Shares. The listing of
the
Common Shares was approved by The American Stock Exchange on October 4, 2006.
In
addition, under the purchase agreements we granted the Purchasers "piggy-back"
registration rights with respect to the Common Shares on the next registration
statement (other than on Form S-8, S-4 or similar Forms) filed by
us.
The
proceeds in the amount of $1,000,500 were received by us on August 10, 2006.
We
issued the Common Shares to the investors on October 5, 2006, subsequent
to the
approval of The American Stock Exchange of the additional listing of the
shares
as required pursuant to the August 2006 Securities Purchase
Agreements.
February
2006 Securities Purchase Agreement
On
February 21, 2006, we entered into a Securities Purchase Agreement with koncepts
International Limited pursuant to which we agreed to sell and issue 12,875,536
shares of common stock, $.01 par value per share (the "Common Stock"), and
3
common stock purchase warrants to purchase an aggregate of 5,000,000 shares
of
our common stock for an aggregate purchase price of $3,000,000, or a per
share
purchase price of $.233. Subject to additional closing conditions as specified
in the Purchase Agreement, the closing of the offering was subject to our
successful restructuring of our $4,000,000 principal amount subordinated
debenture which came due on February 20, 2006, as well as the approval of
the
American Stock Exchange and the shareholders of Starlight International Holdings
Ltd., parent company of the koncepts, as per the requirements of Hong Kong
Stock
Exchange. On July 25, 2006, we received the approval of the American Stock
Exchange.
A
portion
of the proceeds in the amount of $2,000,000 was received by us on March 9,
2006.
The warrants were issued upon the execution of the Agreement. The remainder
of
the proceeds in the amount of $1,000,000 was received on June 20, 2006 and
the
shares of common stock purchased by the investor were issued on July 31,
2006,
subsequent to the approval of The American Stock Exchange of the additional
listing of the shares and the restructuring of the approximately $4,000,000
in
outstanding convertible debentures, as required pursuant to the February
2006
Securities Purchase Agreement.
We
issued
warrants to purchase (i) 2,500,000 shares of our common stock at an exercise
price of $.233 per share for one year from the date of issuance, (ii) 1,250,000
shares of our common stock at an exercise price of $.28 per share for three
years from the date of issuance, and (iii) 1,250,000 shares of our common
stock
at an exercise price of $.35 per share for four years from the date of issuance.
The warrants are subject to adjustment upon the occurrence of specific events,
including stock dividends, stock splits, combinations or reclassifications
of
our common stock or distributions of cash or other assets. Under the terms
of
the warrants, in no event shall koncepts become the beneficial owner of more
than 19.99% of the number of shares of common stock outstanding immediately
after giving effect to such issuance. We are not registering any of shares
underlying the aforementioned common stock purchase warrants in this prospectus.
In
addition, we entered into a Registration Rights Agreement with koncepts on
February 21, 2006 pursuant to which we are obligated to file this registration
statement on Form S-3 (or if Form S-3 is not then available to us, on such
form
of registration statement that is available to effect the registration of the
Common Stock and the shares of common stock underlying the warrants) within
60
days after the closing date. We must register at least the number of shares
of
our common stock equal to the Common Stock plus the number of shares necessary
to permit the exercise in full of the warrants. In addition, we are obligated
to
use our best efforts to cause the SEC to declare the registration statement
effective no later than 120 days after the filing date. If we do not file the
registration statement, or if the SEC does not declare the registration
statement effective, within the aforementioned time periods, we are required
to
make pro rata payments to koncepts, as liquidated damages and not as a penalty,
in an amount equal to 1.0% of the aggregate amount invested by koncepts for
each
30 day period or pro rata for any portion thereof, following the date by which
such registration statement should have been filed or declared
effective.
We
claim
an exemption from the registration requirements of the Act for the private
placement of these securities pursuant to Section 4(2) of the Act and/or
Regulation D promulgated there under since, among other things, the transaction
did not involve a public offering, the investors are accredited investors and/or
qualified institutional buyers, the investors had access to information about
us
and their investment, the investors took the securities for investment and
not
resale, and we took appropriate measures to restrict the transfer of the
securities.
RISK
FACTORS
This
investment has a high degree of risk. Before you invest you should carefully
consider the risks and uncertainties described below and the other information
in this prospectus. If any of the following risks actually occur, our business,
operating results and financial condition could be harmed and the value of
our
stock could go down. This means you could lose all or a part of your
investment.
RISKS
ASSOCIATED WITH OUR BUSINESS
WE
HAVE SIGNIFICANT WORKING CAPITAL NEEDS AND IF WE ARE UNABLE TO OBTAIN ADDITIONAL
FINANCING, WHEN NEEDED, WE MAY NOT HAVE SUFFICIENT CASH FLOW TO RUN OUR
BUSINESS.
As
of
September 30, 2006, our cash on hand is limited. We need approximately $1.05
million in working capital in order to finance our operations over the next
three months. We will finance our working capital needs from the collection
of
accounts receivable, and sales of existing inventory. As of September 30,
2006,
our inventory was valued at approximately $3.1 million. If these sources
do not
provide us with adequate financing, we may try to seek financing from lenders
and investors. If we are not able to obtain adequate financing, when needed,
it
will have a material adverse effect on our cash flow and our ability to continue
as a going concern. If we have a severe shortage of working capital, we may
not
be able to continue our business operations and may be required to file a
petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code or enter
into some other form of liquidation or reorganization
proceeding.
WE
MAY BE DEEMED INSOLVENT AND WE MAY GO OUT OF BUSINESS.
As
of
September 30, 2006, our cash position is limited and we had negative equity.
We
are not able to pay all of our creditors on a timely basis. We are not current
on our accounts payable of approximately $0.2 million to our factory in China.
If we are not able to pay our current debts as they become due, we may be
deemed
to be insolvent. We may be required to file a petition for bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code or enter into some other form of
liquidation or reorganization proceedings.
OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS RAISED SUBSTANTIAL DOUBT ABOUT
OUR ABILITY TO CONTINUE AS A GOING CONCERN AS OF MARCH 31,
2006.
We
received a report dated May 26, 2006 from our independent certified public
accountants covering the consolidated financial statements for our fiscal year
ended March 31, 2006 that included an explanatory paragraph which stated that
the financial statements were prepared assuming that we would continue as a
going concern. This report stated that our operating performance in fiscal
2006
and our minimal liquidity raised substantial doubt about our ability to continue
as a going concern. If we are not able to raise additional capital, we may
need
to curtail or stop our business operations. We may be required to file a
petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code or enter
into some other form of liquidation or reorganization proceedings.
A
SMALL NUMBER OF OUR CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR REVENUES,
AND THE LOSS OF ONE OR MORE OF THESE KEY CUSTOMERS COULD SIGNIFICANTLY REDUCE
OUR REVENUES AND CASH FLOW.
We
rely
on a few large customers to provide a substantial portion of our revenues.
As a
percentage of total revenues, our net sales to our five largest customers during
the year ended March 31, 2006 and year ended March 31, 2005 were approximately
56% and 40%, respectively. We do not have long-term contractual arrangements
with any of our customers and they can cancel their orders at any time prior
to
delivery. A substantial reduction in or termination of orders from any of our
largest customers would decrease our revenues and cash flow.
WE
ARE RELYING ON ONE FACTORY TO MANUFACTURE AND PRODUCE THE MAJORITY OF OUR
KARAOKE MACHINES FOR FISCAL 2007, AND IF THE RELATIONSHIP WITH THIS FACTORY
IS
DAMAGED OR INJURED IN ANY WAY, IT WOULD REDUCE OUR REVENUES AND
PROFITABILITY.
We
have
worked out a written agreement with factories in China to produce most of
our
karaoke machines for fiscal 2007. We owe one factory approximately $0.2 million
as of September 30, 2006 and have worked out a verbal payment plan with it.
If
the factory is unwilling or unable to deliver our karaoke machines to us,
our
business will be adversely affected. Because our cash on hand is minimal,
we are
relying on revenues received from the sale of our ordered karaoke machines
to
provide cash flow for our operations. If we do not receive cash from these
sales, we may not be able to continue our business
operations.
WE
ARE RELYING ON ONE DISTRIBUTOR TO DISTRIBUTE OUR MUSIC PRODUCTS, IF THE
DISTRIBUTION AGREEMENT IS TERMINATED, IT WOULD REDUCE OUR REVENUES AND
PROFITABILITY.
We
are
relying on Warner Elektra Atlantic Corporation (WEA) to distribute our music
products in fiscal 2007, if the distribution agreement is terminated, our music
revenues might decrease as well as our profitability. Our current distribution
agreement expires on August 30, 2007.
WE
ARE SUBJECT TO THE RISK THAT SOME OF OUR LARGE CUSTOMERS MAY RETURN KARAOKE
PRODUCTS THAT THEY HAVE PURCHASED FROM US AND IF THIS HAPPENS, IT WOULD REDUCE
OUR REVENUES AND PROFITABILITY.
WE
ARE SUBJECT TO PRESSURE FROM OUR CUSTOMERS RELATING TO PRICE REDUCTION AND
FINANCIAL INCENTIVES AND IF WE ARE PRESSURED TO MAKE THESE CONCESSIONS TO OUR
CUSTOMERS, IT WILL REDUCE OUR REVENUES AND PROFITABILITY.
Because
there is intense competition in the karaoke industry, we are subject to pricing
pressure from our customers. Many of our customers have demanded that we lower
our prices or they will buy our competitor's products. If we do not meet our
customer's demands for lower prices, we will not sell as many karaoke products.
In the fiscal year ended March 31, 2006, our sales to customers in the United
States decreased because of increased price competition. We are also subject
to
pressure from our customers regarding certain financial incentives, such as
return credits or large advertising or cooperative advertising allowances,
which
effectively reduce our profit. We gave advertising allowances in the amount
of
approximately $0.2 million during fiscal 2006 and approximately $0.6 million
during fiscal 2005. We have historically offered advertising allowances to
our
customers because it is standard practice in the retail industry.
WE
EXPERIENCE DIFFICULTY FORECASTING THE DEMAND FOR OUR KARAOKE PRODUCTS AND IF
WE
DO NOT ACCURATELY FORECAST DEMAND, OUR REVENUES, NET INCOME AND CASH FLOW MAY
BE
AFFECTED.
Because
of our reliance on manufacturers in China for our machine production, our
production lead times range from one to four months. Therefore, we must commit
to production in advance of customers orders. It is difficult to forecast
customer demand because we do not have any scientific or quantitative method
to
predict this demand. Our forecasting is based on management's general
expectations about customer demand, the general strength of the retail market
and management's historical experiences. We overestimated demand for our
products in fiscal 2003 and 2004 and had approximately $5.9 million in inventory
as of March 31, 2004. Because of this excess inventory, we had liquidity
problems in fiscal 2005 and our revenues, net income and cash flow were
adversely affected.
WE
ARE SUBJECT TO THE COSTS AND RISKS OF CARRYING INVENTORY FOR OUR CUSTOMERS
AND
IF WE HAVE TOO MUCH INVENTORY, IT WILL AFFECT OUR REVENUES AND NET
INCOME.
Many
of
our customers place orders with us several months prior to the holiday season,
but they schedule delivery two or three weeks before the holiday season begins.
As such, we are subject to the risks and costs of carrying inventory during
the
time period between the placement or the order and the delivery date, which
reduces our cash flow. As of September 30, 2006 we had approximately $3.1
million in inventory on hand. It is important that we sell this inventory
during
fiscal 2007, so we have sufficient cash flow for operations.
OUR
GROSS PROFIT MARGINS HAVE DECREASED OVER THE PAST YEAR AND WE EXPECT A
COMPETITIVE MARKET.
Over
the
past year, our gross profit margins have generally decreased due to the
competition except for fiscal 2005 when we had developed several new models,
which were in demand and yielded higher profit margins. We expect that our
gross
profit margin might decrease under downward pressure in fiscal
2007.
OUR
BUSINESS IS SEASONAL AND THEREFORE OUR ANNUAL OPERATING RESULTS WILL DEPEND,
IN
LARGE PART, ON OUR SALES DURING THE RELATIVELY BRIEF HOLIDAY
SEASON.
Sales
of
consumer electronics and toy products in the retail channel are highly seasonal,
with a majority of retail sales occurring during the period from September
through December in anticipation of the holiday season, which includes
Christmas. A substantial majority of our sales occur during the second quarter
ending September 30 and the third quarter ending December 31. Sales in our
second and third quarter, combined, accounted for approximately 87.9%, 86.7%
and
87.2% of net sales in fiscal 2006, 2005 and 2004, respectively.
IF
WE ARE UNABLE TO COMPETE IN THE KARAOKE PRODUCTS CATEGORY, OUR REVENUES AND
NET
PROFITABILITY WILL BE REDUCED.
Our
major
competitor for karaoke machines and related products is Memorex. We believe
that
competition for karaoke machines is based primarily on price, product features,
reputation, delivery times, and customer support. Our primary competitors for
producing karaoke music are Compass, Pocket Songs, Sybersound, UAV and Sound
Choice. We believe that competition for karaoke music is based primarily on
popularity of song titles, price, reputation, and delivery times. To the extent
that we lower prices to attempt to enhance or retain market share, we may
adversely impact our operating margins. Conversely, if we opt not to match
competitor's price reductions we may lose market share, resulting in decreased
volume and revenue. To the extent our leading competitors reduce prices on
their
karaoke machines and music, we must remain flexible to reduce our prices. If
we
are forced to reduce our prices, it will result in lower margins and reduced
profitability. Because of intense competition in the karaoke industry in the
United States during fiscal 2006, we expect that the intense pricing pressure
in
the low end of the market will continue in the karaoke market in the United
States in fiscal 2007. In addition, we must compete with all the other existing
forms of entertainment including, but not limited to: motion pictures, video
arcade games, home video games, theme parks, nightclubs, television, prerecorded
tapes, CD's and video cassettes.
IF
WE ARE UNABLE TO DEVELOP NEW KARAOKE PRODUCTS, OUR REVENUES MAY NOT CONTINUE
TO
GROW.
The
karaoke industry is characterized by rapid technological change, frequent new
product introductions and enhancements and ongoing customer demands for greater
performance. In addition, the average selling price of any karaoke machine
has
historically decreased over its life, and we expect that trend to continue.
As a
result, our products may not be competitive if we fail to introduce new products
or product enhancements that meet evolving customer demands. The development
of
new products is complex, and we may not be able to complete development in
a
timely manner. To introduce products on a timely basis, we must:
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·
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accurately
define and design new products to meet market
needs;
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·
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design
features that continue to differentiate our products from those of
our
competitors;
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transition
our products to new manufacturing process
technologies;
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·
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identify
emerging technological trends in our target
markets;
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·
|
anticipate
changes in end-user preferences with respect to our customers'
products;
|
|
·
|
bring
products to market on a timely basis at competitive prices;
and
|
|
·
|
respond
effectively to technological changes or product announcements by
others.
|
We
believe that we will need to continue to enhance our karaoke machines and
develop new machines to keep pace with competitive and technological
developments and to achieve market acceptance for our products. At the same
time, we need to identify and develop other products which may be different
from
karaoke machines.
OUR
PRODUCTS ARE SHIPPED FROM CHINA AND ANY DISRUPTION OF SHIPPING COULD PREVENT
OR
DELAY OUR CUSTOMERS' RECEIPT OF INVENTORY.
We
rely
principally on four contract ocean carriers to ship virtually all of the
products that we import to our warehouse facility in Compton, California.
Retailers that take delivery of our products in China rely on a variety of
carriers to import those products. Any disruptions in shipping, whether in
California or China, caused by labor strikes, other labor disputes, terrorism,
and international incidents may prevent or delay our customers' receipt of
inventory. If our customers do not receive their inventory on a timely basis,
they may cancel their orders or return products to us. Consequently, our
revenues and net income would be reduced.
OUR
MANUFACTURING OPERATIONS ARE LOCATED IN THE PEOPLE'S REPUBLIC OF CHINA,
SUBJECTING US TO RISKS COMMON IN INTERNATIONAL OPERATIONS. IF THERE IS ANY
PROBLEM WITH THE MANUFACTURING PROCESS, OUR REVENUES AND NET PROFITABILITY
MAY
BE REDUCED.
We
are
using six factories in the People's Republic of China to manufacture our karaoke
machines. These factories will be producing approximately 98% of our karaoke
products in fiscal 2007. Our arrangements with these factories are subject
to
the risks of doing business abroad, such as import duties, trade restrictions,
work stoppages, and foreign currency fluctuations, limitations on the
repatriation of earnings and political instability, which could have an adverse
impact on our business. Furthermore, we have limited control over the
manufacturing processes themselves. As a result, any difficulties encountered
by
our third-party manufacturers that result in product defects, production delays,
cost overruns or the inability to fulfill orders on a timely basis could
adversely affect our revenues, profitability and cash flow. Also, since we
do
not have written agreements with any of these factories, we are subject to
additional uncertainty if the factories do not deliver products to us on a
timely basis.
WE
DEPEND ON THIRD PARTY SUPPLIERS FOR PARTS FOR OUR KARAOKE MACHINES AND RELATED
PRODUCTS, AND IF WE CANNOT OBTAIN SUPPLIES AS NEEDED OUR OPERATIONS WILL BE
SEVERELY DAMAGED
.
Our
growth and ability to meet customer demand depends in part on our capability
to
obtain timely deliveries of karaoke machines and our electronic products. We
rely on third party suppliers to produce the parts and materials we use to
manufacture and produce these products. If our suppliers are unable to provide
our factories with the parts and supplies, we will be unable to produce our
products. We cannot guarantee that we will be able to purchase the parts we
need
at reasonable prices or in a timely fashion. In the last several years, there
have been shortages of certain chips that we use in our karaoke machines. If
we
are unable to anticipate any shortages of parts and materials in the future,
we
may experience severe production problems, which would impact our
sales.
CONSUMER
DISCRETIONARY SPENDING MAY AFFECT KARAOKE PURCHASES AND IS AFFECTED BY VARIOUS
ECONOMIC CONDITIONS AND CHANGES.
Our
business and financial performance may be damaged more than most companies
by
adverse financial conditions affecting our business or by a general weakening
of
the economy. Purchases of karaoke machines and music are considered
discretionary for consumers. Our success will therefore be influenced by a
number of economic factors affecting discretionary and consumer spending, such
as employment levels, business, interest rates, and taxation rates, all of
which
are not under our control. Additionally, other extraordinary events such as
terrorist attacks or military engagements, which adversely affect the retail
environment may restrict consumer spending and thereby adversely affect our
sales growth and profitability.
WE
MAY HAVE INFRINGED THE COPYRIGHTS OF CERTAIN MUSIC PUBLISHERS AND IF WE VIOLATE
FEDERAL COPYRIGHT LAWS, WE WILL BE SUBJECT TO MONETARY
PENALTIES.
Over
the
past several years, we (like our competitors) has received notices from certain
music publishers alleging that the full range of necessary rights in their
copyrighted works has not been properly licensed in order to sell those works
as
part of products known as "compact discs with graphics" ("CDG"s). CDG's are
compact discs which contain the musical recordings of karaoke songs and graphics
which contain the lyrics of the songs. Singing Machine has negotiated licenses
with the complaining parties, or is in the process of settling such claims,
with
each one of the complaining copyright owners. As with any alleged copyright
violations, unlicensed users may be subject to damages under the U.S. Copyright
Act. Such damages and claims could have a negative effect on our ability to
sell
its music products to its customers if left unchecked or unresolved, the reason
we pursue licenses so diligently.
WE
MAY BE SUBJECT TO CLAIMS FROM THIRD PARTIES FOR UNAUTHORIZED USE OF THEIR
PROPRIETARY TECHNOLOGY, COPYRIGHTS OR TRADE SECRETS AND ANY CLAIMS ASSERTED
AGAINST US COULD AFFECT OUR NET PROFITABILITY.
We
believe that we independently developed the technology used in our electronic
and audio software products and that it does not infringe on the proprietary
rights, copyrights or trade secrets of others. However, we cannot assure you
that we have not infringed on the proprietary rights of third parties or those
third parties will not make infringement violation claims against us. During
fiscal 2000, Tanashin Denki, Ltd., a Japanese company that holds a patent on
a
cassette tape drive mechanism alleged that some of our karaoke machines violated
their patents. We settled the matters with Tanashin in December 1999.
Subsequently in December 2002, Tanashin again alleged that some of our karaoke
machines violated their patents. We entered into another settlement agreement
with them in May 2003. In addition to Tanashin, we could receive infringement
claims from other third parties. Any infringement claims may have a negative
effect on our profitability and financial condition.
WE
ARE EXPOSED TO THE CREDIT RISK OF OUR CUSTOMERS, WHO ARE EXPERIENCING FINANCIAL
DIFFICULTIES, AND IF THESE CUSTOMERS ARE UNABLE TO PAY US, OUR REVENUES AND
PROFITABILITY WILL BE REDUCED.
We
sell
products to retailers, including department stores, lifestyle merchants,
direct
mail retailers, which are catalogs and showrooms, national chains, specialty
stores, and warehouse clubs. Some of these retailers, such as K-Mart, FAO
Schwarz and KB Toys, have engaged in leveraged buyouts or transactions in
which
they incurred a significant amount of debt, and operated under the protection
of
bankruptcy laws. As of September 30, 2006, we are aware of only three customers,
FAO Schwarz, Musicland and KB Toys, which are operating under the protection
of
bankruptcy laws. Deterioration in the financial condition of our customers
could
result in bad debt expense to us and have a material adverse effect on our
revenues and future profitability.
A
DISRUPTION IN THE OPERATION OF OUR WAREHOUSE CENTERS IN CALIFORNIA OR FLORIDA
COULD IMPACT OUR ABILITY TO DELIVER MERCHANDISE TO OUR STORES, WHICH COULD
ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY.
A
significant amount of our merchandise is shipped to our customers from one
of
our two warehouses, which are located in Compton, California, and Coconut Creek,
Florida. Events such as fire or other catastrophic events, any malfunction
or
disruption of our centralized information systems or shipping problems may
result in delays or disruptions in the timely distribution of merchandise to
our
customers, which could substantially decrease our revenues and
profitability.
OUR
BUSINESS OPERATIONS COULD BE DISRUPTED IF THERE ARE LABOR PROBLEMS ON THE WEST
COAST.
During
fiscal 2006, approximately 33% of our sales were domestic warehouse sales,
which
were made from our warehouses in California and Florida. During the third
quarter of fiscal 2003, the dock strike on the West Coast affected sales of
two
of our karaoke products and we estimate that we lost between approximately
$3
and $5 million in orders because we could not get the containers of these
products off the pier. If another strike or work slow-down occurs and we do
not
have a sufficient level of inventory, a strike or work slow-down would result
in
increased costs to us and may reduce our profitability.
RISKS
ASSOCIATED WITH OUR CAPITAL STRUCTURE
THE
MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE WHICH MAY CAUSE INVESTORS
TO
LOSE ALL OR A PORTION OF THEIR INVESTMENT.
From
December 1, 2004 through September 30, 2006, our common stock has traded
between
a high of $.95 and a low of $0.25. During this period, we had liquidity problems
and incurred a net loss of approximately $1.9 million in fiscal 2006 and
loss of
approximately $3.6 million in fiscal 2005. Our stock price may continue to
be
volatile based on similar or other adverse developments in our business.
In
addition, the stock market periodically experiences significant adverse price
and volume fluctuations which may be unrelated to the operating performance
of
particular companies.
IF
INVESTORS SHORT OUR SECURITIES, IT MAY CAUSE OUR STOCK PRICE TO
DECLINE.
During
the past year, a number of investors have held a short position in our common
stock. As of September 12, 2006, investors hold a short position in approximate
223,000 shares of our common stock which represents 4.0% of our public float.
The anticipated downward pressure on our stock price due to actual or
anticipated sales of our stock by some institutions or individuals who engage
in
short sales of our common stock could cause our stock price to decline.
Additionally, if our stock price declines, it may be more difficult for us
to
raise capital.
OUR
COMMON STOCK MAY BE DELISTED FROM THE AMERICAN STOCK EXCHANGE, WHICH MAY HAVE
A
MATERIAL ADVERSE IMPACT ON THE PRICING AND TRADING OF OUR COMMON
STOCK.
On
August
31, 2006, we received notice from the American Stock Exchange (the “AMEX”),
Listing Qualifications Department, stating that we do not meet certain of the
AMEX’s continued listing standards as set forth in Part 10 of the AMEX Company
Guide and that we have become subject to the continued listing evaluation and
follow-up procedures and requirements of Section 1009 of the Company
Guide.
Pursuant
to a review by the AMEX of our 10-K for the fiscal year ended March 31, 2006,
the AMEX has determined that we are not in compliance with Section 1003(a)(ii)
of the Company Guide, which states, in relevant part, that the AMEX will
normally consider suspending dealings in, or removing from the list, securities
of a company which has stockholders' equity of less than $4,000,000 if such
company has sustained losses from continuing operations and/or net losses in
three of its four most recent fiscal years.
We
submitted the response to the AMEX on October 2, 2006 advising the AMEX of
actions that we will take, which may bring us into compliance with Section
1003
(a)(ii) of the Company Guide within a maximum of 18 months from July 18, 2005.
The AMEX would review our response and determine whether to grant us additional
time to meet the Section 1003(a)(ii) listing requirement. If the AMEX does
not
approve of our plan, or if AMEX approves of the plan but we fail to regain
compliance, this will likely result in the AMEX initiating delisting proceedings
pursuant to Section 1009 of the Company Guide. Further, if our common stock
is
removed from listing on AMEX, it may become more difficult for us to raise
funds
through the sales of our common stock or securities.
IF
OUR OUTSTANDING DERIVATIVE SECURITIES ARE EXERCISED OR CONVERTED, OUR EXISTING
SHAREHOLDERS WILL SUFFER DILUTION.
As
of
September 30, 2006, there were outstanding stock options to purchase an
aggregate of 1,730,690 shares of common stock at exercise prices ranging from
$.32 to $11.09 per share, not all of which are immediately exercisable. The
weighted average exercise price of the outstanding stock options is
approximately $1.13 per share. As of September 30, 2006, there were outstanding
immediately exercisable options to purchase an aggregate of 518,660 shares
of
our common stock. There were outstanding stock warrants to purchase 5,000,000
shares of common stock at exercise prices ranging from $.23 to $.35 per share,
all of which are exercisable. The weighted average exercise price of the
outstanding stock warrants is approximately $0.48 per share.
FUTURE
SALES OF OUR COMMON STOCK HELD BY CURRENT STOCKHOLDERS AND INVESTORS MAY DEPRESS
OUR STOCK PRICE.
As
of
September 30, 2006, there were 25,274,883 shares of our common stock
outstanding. We have filed two registration statements registering an aggregate
3,794,250 of shares of our common stock (a registration statement on Form S-8
to
register the sale of 1,844,250 shares underlying options granted under our
1994
Stock Option Plan and a registration statement on Form S-8 to register 1,950,000
shares of our common stock underlying options granted under our Year 2001 Stock
Option Plan). An additional registration statement on Form S-1 was filed in
October 2003, registering an aggregate of 2,795,465 shares of our common stock.
The market price of our common stock could drop due to the sale of large number
of shares of our common stock, such as the shares sold pursuant to the
registration statements or under Rule 144, or the perception that these sales
could occur.
OUR
STOCK PRICE MAY DECREASE IF WE ISSUE ADDITIONAL SHARES OF OUR COMMON
STOCK.
Our
Certificate of Incorporation authorizes the issuance of 100,000,000 shares
of
common stock as amended in January 2006. As of September 30, 2006, we had
25,274,883 shares of common stock issued and outstanding and an aggregate of
5,576,515 shares issuable under our outstanding options and warrants. As such,
our Board of Directors has the power, without stockholder approval, to issue
up
to 69,467,732 shares of common stock.
Any
issuance of additional shares of common stock, whether by us to new stockholders
or the exercise of outstanding warrants or options, may result in a reduction
of
the book value or market price of our outstanding common stock. Issuance of
additional shares will reduce the proportionate ownership and voting power
of
our then existing stockholders.
PROVISIONS
IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAKE IT DIFFICULT FOR A THIRD PARTY
TO
ACQUIRE OUR COMPANY AND COULD DEPRESS THE PRICE OF OUR COMMON
STOCK.
Delaware
law and our certificate of incorporation and bylaws contain provisions that
could delay, defer or prevent a change in control of our company or a change
in
our management. These provisions could also discourage proxy contests and make
it more difficult for you and other stockholders to elect directors and take
other corporate actions. These provisions of our restated certificate of
incorporation include: authorizing our board of directors to issue additional
preferred stock, limiting the persons who may call special meetings of
stockholders, and establishing advance notice requirements for nominations
for
election to our board of directors or for proposing matters that can be acted
on
by stockholders at stockholder meetings.
FORWARD-LOOKING
STATEMENTS
We
and
our representatives may from time to time make written or oral statements that
are "forward-looking," including statements contained in this prospectus and
other filings with the Securities and Exchange Commission, reports to our
stockholders and news releases. All statements that express expectations,
estimates, forecasts or projections are forward-looking statements within the
meaning of the Act. In addition, other written or oral statements which
constitute forward-looking statements may be made by us or on our behalf. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," "projects," "forecasts," "may," "should," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions which are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in or suggested by such forward-looking statements.
We
undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
USE
OF PROCEEDS
This
prospectus relates to shares of our common stock that may be offered and
sold
from time to time by the selling stockholders. We will not receive any proceeds
from the sale of shares of common stock in this offering.
The
table
below sets forth information concerning the resale of the shares of common
stock
by the selling stockholders. We will not receive any proceeds from the resale
of
the common stock by the selling stockholders.
The
following table also sets forth the name of each person who we are registering
for the future resale of shares of common stock by this prospectus, the number
of shares of common stock beneficially owned by each person, the number of
shares of common stock that may be sold in this offering and the number of
shares of common stock each person will own after the offering, assuming they
sell all of the shares offered.
|
|
|
Shares
Beneficially Owned
Prior
to the Offering
|
|
|
|
Shares
Beneficially Owned
After
the Offering
|
|
|
Name
|
|
Number*
|
|
Percent(1)
|
|
Total
Shares Registered
|
|
Number
|
|
Percent
|
|
|
Timemate
Industries Limited Fund Ltd. (3)
|
|
|
920,000
|
|
|
3.64
|
%
|
|
920,000
|
|
|
-0-
|
|
|
0.0
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gentle
Boss Investments Ltd. (4)
|
|
|
1,380,000
|
|
|
5.46
|
%
|
|
1,380,000
|
|
|
-0-
|
|
|
0.0
|
%
|
|
koncepts
International Limited (2)
|
|
|
5,052,449
|
|
|
19.99
|
%
|
|
7,582,464
|
|
|
10,293,072
|
|
|
40.7
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,352,449
|
|
|
29.09
|
%
|
|
9,882,464
|
|
|
10,293,072
|
|
|
40.7
|
%
|
*
The
selling stockholder has contractually agreed to restrict its ability to exercise
its warrants, which we issued pursuant to our February 2006 Securities Purchase
Agreement and which we are not registering in this prospectus, and receive
shares of our common stock such that the number of shares of common stock
held
by the selling stockholder in the aggregate and its affiliates after such
exercise does not exceed 19.99% of the then issued and outstanding shares
of
common stock as determined in accordance with Section 13(d) of the Exchange
Act.
Accordingly, the number of shares of common stock set forth in the table
for the
selling stockholder exceeds the number of shares of common stock that the
selling stockholder could own beneficially at any given time through its
ownership of the warrants. In that regard, the beneficial ownership of the
common stock by the selling stockholder set forth in the table is not determined
in accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
as
amended.
(1)
Based
upon 25,274,883 shares of common stock issued and outstanding as of September
30, 2006 and does not assume the increase in the number of shares outstanding
by
reason of the exercise of warrants pursuant to which the shares of common stock
listed in this table may have been issued.
(2)
Represents shares of common stock. In accordance with rule 13d-3 under the
securities exchange act of 1934, Philip Lau may be deemed a control person,
with
voting and investment control, of the shares owned by such entity. The selling
stockholder has notified us that they are not broker-dealers and/or affiliates
of broker-dealers.
(3)
Represents shares of common stock. In accordance with rule 13d-3 under the
securities exchange act of 1934, Stephen Chow may be deemed a control person,
with voting and investment control, of the shares owned by such entity. The
selling stockholder has notified us that they are not broker-dealers and/or
affiliates of broker-dealers.
(4)
Represents shares of common stock. In accordance with rule 13d-3 under the
securities exchange act of 1934, Hamen Fan may be deemed a control person,
with
voting and investment control, of the shares owned by such entity. The selling
stockholder has notified us that they are not broker-dealers and/or affiliates
of broker-dealers.
PLAN
OF DISTRIBUTION
Each
selling stockholder of the common stock and any of their pledgees, assignees
and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on the trading market or any other stock exchange, market or
trading facility on which the shares are traded or in private transactions.
These sales may be at fixed or negotiated prices. A selling stockholder may
use
any one or more of the following methods when selling shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a
part;
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
|
·
|
a
combination of any such methods of
sale;
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
or
|
|
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended, if available, rather than under this
prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this Prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in compliance
with
NASDR Rule 2440; and in the case of a principal transaction a markup or markdown
in compliance with NASDR IM-2440.
In
connection with the sale of the common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each selling stockholder has informed us
that it does not have any written or oral agreement or understanding, directly
or indirectly, with any person to distribute the common stock. In no event
shall
any broker-dealer receive fees, commissions and markups which, in the aggregate,
would exceed eight percent (8%).
We
are
required to pay certain fees and expenses incurred by us incident to the
registration of the shares. We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
Because
selling stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act. In addition, any securities covered by this prospectus
which qualify for sale pursuant to Rule 144 under the Securities Act may be
sold
under Rule 144 rather than under this prospectus. Each selling stockholder
has
advised us that they have not entered into any written or oral agreements,
understandings or arrangements with any underwriter or broker-dealer regarding
the sale of the resale shares. There is no underwriter or coordinating broker
acting in connection with the proposed sale of the resale shares by the selling
stockholders.
We
agreed
to keep this prospectus effective until the earlier of (i) the date on which
the
shares may be resold by the selling stockholders without registration and
without regard to any volume limitations by reason of Rule 144(e) under the
Securities Act or any other rule of similar effect or (ii) all of the shares
have been sold pursuant to the prospectus or Rule 144 under the Securities
Act
or any other rule of similar effect. The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares may not
be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged
in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to the common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the selling stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations there
under, including Regulation M, which may limit the timing of purchases and
sales
of shares of the common stock by the selling stockholders or any other person.
We will make copies of this prospectus available to the selling stockholders
and
have informed them of the need to deliver a copy of this prospectus to each
purchaser at or prior to the time of the sale.
DESCRIPTION
OF SECURITIES BEING REGISTERED
COMMON
STOCK
We
are
authorized to issue up to 100,000,000 shares of our common stock, par value
$0.01 per share. The holders of our common stock are entitled to one vote for
each share held of record on all matters to be voted on by stockholders. There
is no cumulative voting with respect to the election of directors, with the
result that the holders of more than 50% of the shares voted for the election
of
directors can elect all of the directors. The holders of our common stock are
entitled to receive dividends when, as and if declared by the Board of Directors
out of funds legally available. In the event of liquidation, dissolution or
winding up of the Company, the holders of our common stock are entitled to
share
ratably in all assets remaining available for distribution to them after payment
of liabilities and after provision has been made for each class of stock, if
any, having preference over the common stock. Holders of shares of common stock,
as such, have no conversion, preemptive or other subscription rights, and,
except as noted herein, there are no redemption provisions applicable to the
common stock. All of the outstanding shares of common stock are validly issued,
fully paid and nonassessable.
Sichenzia
Ross Friedman Ference LLP, New York, New York will issue an opinion with respect
to the validity of the shares of common stock being offered hereby. In
the past, a member of Sichenzia Ross Friedman Ference LLP has received shares
of
common stock from us as consideration for legal services performed on our
behalf. We are not registering any shares of common stock in this prospectus
on
behalf of such member of Sichenzia Ross Friedman Ference LLP.
Berkovits,
Lago & Company, LLP, Independent Registered Public Accountants, have
audited, as set forth in their report thereon incorporated by reference
herein, our financial statements for the years ended March 31, 2006 and 2005.
The financial statements referred to above are incorporated by reference in
this
prospectus with reliance upon the auditors' opinion based on their expertise
in
accounting and auditing.
PART
II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
ITEM
14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table sets forth an itemization of all estimated expenses, all of
which we will pay, in connection with the issuance and distribution of the
securities being registered:
|
|
|
$
|
348.95
|
|
*
|
|
|
Accounting
fees and expenses
|
|
|
5,000
|
|
**
|
|
|
Legal
fees and expenses
|
|
|
25,000
|
|
**
|
|
|
Misc.
|
|
|
651.05
|
|
|
|
|
Total
|
|
$
|
31,000
|
|
**
|
|
*
Previously paid
**Estimated
ITEM
15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our
Certificate of Incorporation provides to the fullest extent permitted by the
General Corporation Law of the State of Delaware, that our directors or officers
shall not be personally liable to us or our shareholders for damages for breach
of such director's or officer's fiduciary duty. The effect of this provision
of
our Articles of Incorporation, as amended and restated, is to eliminate our
rights and our shareholders (through shareholders' derivative suits on behalf
of
our company) to recover damages against a director or officer for breach of
the
fiduciary duty of care as a director or officer (including breaches resulting
from negligent or grossly negligent behavior), except under certain situations
defined by statute. We believe that the indemnification provisions in our
Articles of Incorporation, as amended, are necessary to attract and retain
qualified persons as directors and officers.
Our
By
Laws also provide that the Board of Directors may also authorize us to indemnify
our employees or agents, and to advance the reasonable expenses of such persons,
to the same extent, following the same determinations and upon the same
conditions as are required for the indemnification of and advancement of
expenses to our directors and officers. As of the date of this Registration
Statement, the Board of Directors has not extended indemnification rights to
persons other than directors and officers.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion
of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
|
Exhibit
Number
|
|
Description
|
|
4.1
|
|
Form
of Certificate Evidencing Shares of Common Stock (incorporated by
reference to Exhibit 3.3. of the Singing Machine's registration statement
on Form SB-2 filed with the SEC on March 7, 2000. File No.
333-57722).
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|
|
|
|
|
4.2
|
|
Amended
and Restated 1994 Management Stock Option Plan (incorporated by reference
to Exhibit 10.6 to the Singing Machine's registration statement on
Form
SB-2 filed with the SEC on March 28, 2001, File No.
333-59684).
|
|
|
|
|
|
4.3
|
|
Year
2001 Stock Option Plan (incorporated by reference to Exhibit 10.1
Of the
Singing Machine's registration statement on Form S-8 filed with the
SEC on
September 13, 2002, File No. 333-99543).
|
|
|
|
|
|
4.4
|
|
Securities
Purchase Agreement dated as of August 20, 2003 by and among The Singing
Machine and Omicron Master Trust, SF Capital Partners, Ltd., Bristol
Investment Fund, Ltd., Ascend Offshore Fund, Ltd., Ascend Partners,
LP and
Ascend Partners Sapient, LP (collectively, the "Investors") (filed
as
Exhibit 10.1 to the Singing Machine's Registration Statement filed
with
the SEC on October 9, 2003, File No.
333-109574).
|
|
Exhibit
Number
|
|
Description
|
|
4.4
|
|
Amendment
dated September 5, 2003 to Securities Purchase Agreement Between
the
Singing Machine and the Investors (filed as Exhibit 10.2 to the Singing
Machine's Registration Statement filed with the SEC on October 9,
2003,
File No. 333-109574).
|
|
|
|
|
|
4.5
|
|
Form
of Debenture Agreement issued by the Singing Machine to each of the
Investors (filed as Exhibit 10.3 to the Singing Machine's Registration
Statement filed with the SEC on October 9, 2003, File No.
333-109574).
|
|
|
|
|
|
4.6
|
|
Form
of Warrant Agreement issued by the Singing Machine to the Investors
(filed
as Exhibit 10.4 to the Singing Machine's Registration Statement Filed
with
the SEC on October 9, 2003, File No. 333-109574).
|
|
|
|
|
|
4.7
|
|
Warrant
Agreement between the Singing Machine and Roth Capital Partners,
LLC
(filed as Exhibit 10.5 to the Singing Machine's Registration Statement
filed with the SEC on October 9, 2003, File No.
333-109574).
|
|
|
|
|
|
4.8
|
|
Registration
Rights Agreement between the Singing Machine and each of The Investors
and
Roth Capital Partners, LLC (filed as Exhibit 10.5 to the Singing
Machine's
Registration Statement filed with the SEC on October 9, 2003, File
No.
333-109574).
|
|
4.9
|
|
One
Year Stock Purchase Warrant of the Singing Machine issued to koncepts
International Limited dated as of February 21, 2006 (filed as Exhibit
10.3
to the Singing Machine’s Current Report on Form 8-K filed with the SEC on
February 27, 2006).
|
| |
|
|
|
4.10
|
|
Three
Year Stock Purchase Warrant of the Singing Machine issued to koncepts
International Limited dated as of February 21, 2006 (filed as Exhibit
10.4
to the Singing Machine’s Current Report on Form 8-K filed with the SEC on
February 27, 2006).
|
| |
|
|
|
4.11
|
|
Four
Year Stock Purchase Warrant of the Singing Machine issued to koncepts
International Limited dated as of February 21, 2006 (filed as Exhibit
10.5
to the Singing Machine’s Current Report on Form 8-K filed with the SEC on
February 27, 2006).
|
|
5.1
|
|
Opinion
of Sichenzia Ross Friedman Ference LLP (Filed
herewith).
|
|
10.1
|
|
Securities
Purchase Agreement dated February 21, 2006 by and between the Singing
Machine and koncepts International Limited (filed as Exhibit 10.1
to the
Singing Machine’s Current Report on Form 8-K filed with the SEC on
February 27, 2006).
|
| |
|
|
|
10.2
|
|
Registration
Rights Agreement dated February 21, 2006 by and between the Singing
Machine and koncepts International Limited (filed as Exhibit 10.2
to the
Singing Machine’s Current Report on Form 8-K filed with the SEC on
February 27, 2006).
|
| |
|
|
|
10.3
|
|
Securities
Purchase Agreement dated August 9, 2006 by and between the Singing
Machine
and the purchasers named on the signature pages thereto (filed
as Exhibit
10.1 to the Singing Machine’s Current Report on Form 8-K filed with the
SEC on August 14, 2006).
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|
23.1
|
|
Consent
of Berkovits, Lago & Company, LLP, Independent Registered Public
Accounting Firm (Filed herewith).
|
|
|
|
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23.2
|
|
Consent
of Sichenzia Ross Friedman Ference LLP (Incorporated in Exhibit
5.1)
|
ITEM
17. UNDERTAKINGS
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding
the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the “Calculation of Registration Fee”
table in the effective registration statement;
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
Provided,
however
, that
paragraphs (1)(i), (1)(ii) and (1)(iii) do not apply if the Registration
Statement is on Form S-3 and if the information required to be included in
a
post-effective amendment by those paragraphs is contained in reports filed
with
or furnished to the Commission by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement, or is contained in a form of
prospectus filed pursuant to Rule 424(b) that is part of the registration
statement.
(2) That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide
offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for purposes of determining any liability under the Securities Act of 1933,
each
filing of the registrant’s annual report pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an
employee benefit plan’s annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide
offering
thereof.
(5) That,
for the purpose of determining liability under the Securities Act of 1933 to
any
purchaser:
(A) Each
prospectus filed by a Registrant pursuant to Rule 424(b)(3) shall be deemed
to be part of the registration statement as of the date the filed prospectus
was
deemed part of and included in the registration statement; and
(B) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or
(b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or
(x) for the purpose of providing the information required by Section 10(a)
of the Securities Act of 1933 shall be deemed to be part of and included in
the
registration statement as of the earlier of the date such form of prospectus
is
first used after effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As provided in
Rule 430B, for liability purposes of the issuer and any person that is at
that date an underwriter, such date shall be deemed to be a new effective date
of the registration statement relating to the securities in the registration
statement to which the prospectus relates, and the offering of such securities
at that time shall be deemed to be the initial bona
fide
offering
thereof. Provided,
however
, that
no statement made in a registration statement or prospectus that is part of
the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of
the
registration statement will, as to a purchaser with a time of contract of sale
prior to such effective date, supersede or modify any statement that was made
in
the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such effective
date.
(6)
That,
for the purpose of determining liability of a Registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the securities,
each
undersigned Registrant undertakes that in a primary offering of securities
of an
undersigned Registrant pursuant to this registration statement, regardless
of
the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned Registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i) Any
preliminary prospectus or prospectus of an undersigned Registrant relating
to
the offering required to be filed pursuant to Rule 424;
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of
an
undersigned Registrant or used or referred to by an undersigned
Registrant;
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about an undersigned Registrant or its securities provided
by or on behalf of an undersigned Registrant; and
(iv) Any
other communication that is an offer in the offering made by an undersigned
Registrant to the purchaser.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of
such issue.
Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule
430B
or other than prospectuses filed in reliance on Rule 430A, shall be deemed
to be
part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into
the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first
use,
supersede or modify any statement that was made in the registration statement
or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of
the
requirements of filing on Form S-3 and authorizes this registration statement
to
be signed on its behalf by the undersigned, in the City of Coconut Creek,
State
of Florida, on January 5, 2007.
|
|
|
|
|
|
THE
SINGING MACHINE COMPANY, INC.
|
|
|
|
|
| |
By:
|
/s/
Danny Zheng
|
|
|
Danny
Zheng
INTERIM
CHIEF EXECUTIVE OFFICER
(PRINCIPAL
EXECUTIVE OFFICER) AND CHIEF
FINANCIAL
OFFICER (PRINCIPAL FINANCIAL AND
ACCOUNTING
OFFICER))
|
In
accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and
on the dates stated.
|
NAME
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
|
|
/s/
Danny Zheng
|
|
Interim
Chief Executive Officer (Principal Executive Officer) and
|
|
January
5, 2007
|
|
Danny
Zheng
|
|
Chief
Financial Officer (Principal Financial and Accounting Officer)
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/
Josef A. Bauer
|
|
Director
|
|
January
5, 2007
|
|
Josef
A. Bauer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Bernard Appel
|
|
Director
|
|
January
5, 2007
|
|
Bernard
Appel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Harvey
Judkowitz
|
|
Director
|
|
January
5, 2007
|
|
Harvey
Judkowitz
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Marc Goldberg
|
|
Director
|
|
January
5, 2007
|
|
Marc
Goldberg
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Stewart
Merkin
|
|
Director
|
|
January
5, 2007
|
|
Stewart
Merkin
|
|
|
|
|