SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14A INFORMATION
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Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
THE SINGING MACHINE COMPANY, INC.
(Name of Registrant as Specified In Its Charter)
THE SINGING MACHINE COMPANY, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
The Singing Machine Company, Inc.
3101 N.W. 25th Avenue
Pompano Beach, Florida 33069
January 14, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of the
Shareholders of The Singing Machine Company, Inc.
As shown in the formal notice enclosed, the meeting will be held on March
18, 1999 at 10:00 a.m. in the Marriot Hotel located at Crocker Center, 5150
Town Center Circle, Boca Raton, Florida. At the meeting, in addition to
acting on the matters described in the Proxy Statement, we will give a current
report on the activities of the Company.
The subjects proposed for action at the meeting are the election of
directors, to approve The Singing Machine Company, Inc. Employee Stock Option
Plan, the amendment of the Company's Articles of Incorporation to increase the
number of authorized shares, the approval of the Company's independent
certified public accountants, and the conduct of such other business as may
properly come before the meeting.
It is important that your shares be represented at this meeting in order
that the presence of a quorum may be assured. Whether or not you plan to
attend the meeting and regardless of the number of shares you own, please
mark, sign and mail the enclosed proxy in the envelope provided.
Sincerely,
By:__________________________
Edward Steele
President and Chief
Executive Officer
<PAGE>
PROXY STATEMENT
The Singing Machine Company, Inc.
3101 N.W. 25th Avenue
Pompano Beach, Florida 33069
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
March 18, 1999
NOTICE IS HEREBY given that the 1998 Annual Meeting of Shareholders (the
"Annual Meeting") of The Singing Machine Company, Inc., a Florida corporation
(the "Company"), will be held at the Marriott Hotel which is located at
Crocker Center, 5150 Town Center Circle, Boca Raton, Florida, on March 18,
1999 at 10:00 a.m., local time, for the purpose of considering and acting upon
the following matters:
(1) To elect directors to serve until the next Annual Meeting of
Shareholders and until their successors shall be elected and
qualified;
(2) To ratify the issuance of stock options pursuant to The Singing
Machine Company, Inc. Employee Stock Option Plan;
(3) To consider and act upon a proposal to amend the Company's Articles
of Incorporation to increase the number of authorized shares of
Common Stock from 10,000,000 to 75,000,000;
(4) To approve Sam F. May Jr., CPA as the Company's independent
certified public accountants for the fiscal year ended March 31,
1999; and
(5) To transact such other and further business as may properly come
before the meeting.
The Board of Directors of the Company has fixed the close of business on
February 3, 1999, as the record date for the determination of shareholders
entitled to notice of, and to vote, at the Annual Meeting. As of the record
date, there were 2,356,935 shares of the Company's Common Stock, par value
$.001 per share (the "Common Stock"), issued and outstanding and entitled to
vote at the Annual Meeting giving effect to the Company's 1-for-10 reverse
stock split pursuant to the Company's Plan of Reorganization, as Amended,
effective March 17, 1998.
The presence, in person, or by proxy, of the holders of a majority of the
outstanding shares of Common Stock entitled to vote on the record date is
necessary to constitute a quorum at the Annual Meeting. Abstentions and
broker non-votes will be counted towards a quorum. If a quorum is not present
or represented at the Annual Meeting, the shareholders present at the Annual
Meeting or represented by proxy have the power to adjourn the Annual Meeting
from time to time, without notice other than an announcement at the Annual
Meeting, until a quorum is present or represented. At any such adjournment
<PAGE>
of the Annual Meeting at which a quorum is present or represented, any
business may be transacted that might have been transacted at
the original Annual Meeting.
The enclosed Proxy Statement contains information pertaining to the
matters to be voted on at the Annual Meeting. A copy of the Company's Form
10-KSB for the fiscal year ended March 31, 1998, is available by contacting
the Company, in writing, to: John Klecha, The Singing Machine Company, Inc.,
3010 N.W. 25th Avenue, Pompano Beach, Florida 33069.
By Order of the Board of
Directors
By:__________________________
Edward Steele
President and Chief
Executive Officer
Pompano Beach, Florida
January 14, 1999
THE MATTERS BEING VOTED ON AT THE ANNUAL MEETING ARE IMPORTANT TO THE
COMPANY. IN ORDER THAT YOUR VOTE IS COUNTED AT THE ANNUAL MEETING, PLEASE
EXECUTE, DATE AND PROMPTLY MAIL THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. THE GIVING
OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON AT THE ANNUAL MEETING
IF THE PROXY IS REVOKED IN THE MANNER SET FORTH IN THE PROXY STATEMENT.
<PAGE>
PROXY STATEMENT
1998 Annual Meeting of Shareholders
GENERAL INFORMATION
The accompanying proxy and this Proxy Statement are furnished in
connection with the solicitation by the Board of Directors (the "Board" or
"Board of Directors") of The Singing Machine Company, Inc., a Florida
corporation (the "Company"), of proxies for use at the Company's 1998 Annual
Meeting of Shareholders (the "Annual Meeting") to be held at the Marriot
Hotel which is located at Crocker Center, 5150 Town Center Circle, Boca
Raton, on March 18, 1999 at 10:00 a.m., local time, or at any adjournment
thereof. This Proxy Statement and the related proxy are being mailed to
shareholders of the Company on or about February 10, 1999.
At the Annual Meeting, shareholders will vote on (a) the election of
directors to serve until the next Annual Meeting of Shareholders and until
their successors shall be elected and qualified; (b) the ratification of the
issuance of stock options pursuant to The Singing Machine Company, Inc.
Employee Stock Option Plan; (c) the amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of Common Stock from
10,000,000 to 75,000,000; (d) the approval of Sam F. May, Jr. and Company CPA
as the Company's independent certified public accountants for the fiscal year
ended March 31, 1999; and (e) the transaction of such other and further
business as may properly come before the meeting. The Board does not know of
any other matters which will be voted upon at the Annual Meeting.
The shares held by each shareholder who executes and returns the proxy
will be counted for purposes of determining the presence of a quorum at the
Annual Meeting unless such proxy is timely revoked. If the proxy is executed
and returned, it may, nevertheless, be revoked at any time before it is voted
by written notice to the Secretary of the Company, by executing and returning
a subsequent proxy or by a shareholder personally attending and voting his or
her shares at the Annual Meeting.
Each properly executed proxy received in time for the Annual Meeting will
be voted as specified therein. If a shareholder does not specify otherwise,
the shares represented by his or her proxy will be voted in accordance with
the recommendations by the Board as follows: FOR the election of Edward
Steele, John F. Klecha, Walter Haskamp, and Paul Wu to the Board of Directors
of the Company; FOR the ratification of the issuance of stock options pursuant
to The Singing Machine Company, Inc. Employee Stock Option Plan; FOR the
amendment of the Company's Certificate of Incorporation to increase the number
of authorized shares of Common Stock from 10,000,000 to 75,000,000; and FOR
the approval of Sam F. May, Jr. and Company, CPA as the Company's independent
certified public accountants for the year ended March 31, 1999.
<PAGE>
The election of the directors nominated requires the affirmative vote of
a plurality of the shares of the Company's Common Stock voting at the Annual
Meeting in person or by proxy. The ratification of the appointment of the
Company's auditors and the approval of The Singing Machine Company, Inc.
Employee Stock Option Plan will require the affirmative vote of a majority of
the shares of the Company's Common Stock voting at the Annual Meeting in
person or by proxy. The approval of the amendment to the Company's Articles
of Incorporation will require the affirmative vote of a majority of the shares
of Common Stock outstanding as of February 3, 1999. Abstentions will have the
same effect as a vote against a proposal and broker non-votes will be
disregarded.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Annual Meeting in
accordance with the directions on the proxies. IF NO DIRECTION IS INDICATED,
THE SHARES WILL BE VOTED FOR EACH PROPOSAL. The enclosed proxy, even though
executed and returned, may be revoked at any time prior to the voting of the
proxy by one of the following methods: (a) execution and submission of a
revised proxy; (b) written notice to the Secretary of the Company, or (c)
voting in person at the Annual Meeting.
Shareholders are encouraged to review the detailed discussion presented
in this Proxy Statement and either return the completed and executed proxy or
attend the Annual Meeting. All statement is the Proxy Statement except as
otherwise indicated, give effect to a 1-for-10 reverse stock split of the
Company's Common Stock, Warrants and Options, effective March 30, 1998,
pursuant to the Plan of Reorganization, as Amended.
COMMON STOCK OWNERSHIP BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table shows information as to "beneficial ownership" of the
Common Stock of the Company, as of February 3, 1999, by each person known by
the Company to be the "beneficial owner" of more than five percent (5%) of
such Common Stock, by each director and execute officer of the company and by
all directors and executive officers of the Company as a group (3 persons).
The determination of "beneficial ownership" of the Company's Common Stock are
based upon responses to Company inquires which cited Rule 13d-3 under the
Securities and Exchange Act of 1934, as amended (the "1934 Act"). Such Rule
provides that shares shall be deemed to be beneficially owned where a person
has, either solely or in conjunction with others, the power to vote or to
direct the voting of shares and/or the power to dispose or to direct the
disposition of shares; or where a person as the right to acquire any such
power within 60 days after the date such "beneficial ownership" is determined
. Except as disclosed in the notes to the table, each person has sole voting
and investment powers with respect to the entire number of shares shown as
beneficially owned by him or her.
<TABLE>
<CAPTION>
Shares
Name and Address Beneficially Percent of
of Beneficial Owner Owned (1)(8) Class
<S> <C> <C>
The Harry Fox Agency 410,675 17.7%
711 Third Avenue, 8th Floor
New York, NY 10017
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Shares
Name and Address Beneficially Percent of
of Beneficial Owner Owned (1)(8) Class
<S> <C> <C>
Alan and Deanna Schor 324,643 13.8%
840 East Walnut
Carson, CA 90746
Memcorp, Inc. 321,984 13.7%
7145 W. 20th Avenue
Hialeah, FL 33014
Magna International Corp. 314,317 13.3%
484 Sunrise Highway
Rockville Center, NY 11570
FLX(HK) Ltd. 212,432 9.1%
Unit 19 5/F Vanta Ind. Centre
21-33 Tai Lin Pai Road
Kwaichung N.T. Kowloon
Hong Kong
Colony Electronics 129,300(2) 5.6%
500 Hennessy Road
Causeway, Hong Kong
Gemco Pacific, Inc. 25,667(3) 1.1%
500 Hennessy Road
Causeway, Hong Kong
Edward Steele (7) 45,968(4) 2.0%
3101 NW. 25th Avenue
Pompano Beach, FL 33069
John Klecha 31,967 1.4%
3101 N.W. 25th Avenue
Pompano Beach, FL 33069
Ford Harvest Ltd. 18,333(9) *
500 Hennessy Road
Causeway, Hong Kong
Paul Wu 7,500(5) *
985 Rexdale Boulevard
Rexdale, Ontario CA M9W 1R9
All Directors and Executive
Officers as a Group (2 persons) 85,435(6) 3.6%
________________________
</TABLE>
<PAGE>
(1) 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.
(2) Mr. Wu is a director of Colony Electronics. Mr. Wu disclaims any
beneficial ownership of the shares of Colony Electronics.
(3) Mr. Wu is a director of Gemco Pacific, Inc. ("Gemco"). Mr. Wu disclaims
beneficial ownership of the shares owned by Gemco. All 25,667 of such
shares have been pledged by Gemco to Magna International, Inc. ("Magna")
to secure payment of an $816,574 promissory note of the Company to Magna.
(4) Includes immediately exercisable options to purchase 6,000 shares of
Common Stock.
(5) Includes immediately exercisable options to purchase 7,500 shares of
Common Stock.
(6) Includes immediately exercisable options to purchase 19,500 shares of
Common Stock and immediately exercisable warrants to acquire 2,250 shares
of Common Stock.
(7) Mr. Steele disclaims beneficial ownership of 6,500 shares owned by his
wife.
(8) Presumes issuance of 2,068,576 shares of the Company's Common Stock to
creditors of the Company pursuant to the Company's Plan of
Reorganization, As Amended, and approved by the Bankruptcy Court on March
17, 1998.
(9) Mr. Wu is a director of Ford Harvest, Ltd. Mr. Wu disclaims beneficial
ownership of the shares owned by Ford Harvest Ltd.
______________________
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's officers and directors and persons who own more than
ten percent (10%) of registered class of the Company's equity securities
(collectively the "Reporting Persons") to file reports and changes in
ownership of such securities with the amendments thereto furnished to the
Company pursuant to Rule 16a-3(e), promulgated under the Exchange Act, during
the Company's fiscal year ended March 31, 1998, and (ii) Forms 5 and any
amendments thereto and/or written representations furnished to the Company by
any Reporting Persons stating that such person was not required to file a Form
5 during the Company's fiscal year ended March 31, 1998, it has been
determined that the following Reporting Persons were delinquent with respect
to such person's reporting obligations set forth in Section 16(a) of the
Exchange Act by failing to file Form 3 in a timely manner on the following
dates: Memcorp, Inc. (December 18, 1998) and Magna International Corp.
(December 18, 1998) have informed the Company that all required Section 16(a)
filings will be made on or before the date of the Annual Meeting.
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
AND INFORMATION REGARDING DIRECTORS
The Board of Directors is presently comprised of four (4) individuals,
Edward Steele, John F. Klecha, Walter Haskamp and Paul Wu. The same four (4)
individuals have been nominated to serve as Directors for the ensuing year and
until their successor shall have been duly elected and qualified. The person
named in the accompanying proxy has advised management that unless authority
is withheld in the proxy, they intend to vote FOR the election of the
individuals listed in the table below. Management does not contemplate that
any of the nominees named in the following table will be unable, or will
decline, to serve; however, if any of the nominees are unable to serve or
decline to serve, the person named in the accompanying proxy may vote for
another person, or persons, in his discretion. The following table sets forth
certain information with respect to each nominee for election to the Board of
Directors. A summary of the background and experience of each nominee is set
forth in the paragraphs following the table.
Name Age Position
Edward Steele 69 Chief Executive Officer,
President and Director
John F. Klecha 48 Chief Financial Officer,
Secretary, Treasurer
and Director
Walter Haskamp 63 Director
Paul Wu 68 Director
Edward Steele joined the Company in 1988 and has served as the Chief
Executive Officer, President, and as a director of the Company since September
1991. From October 1988 to September 1991, Mr. Steele was responsible for the
development of the Company's electronic hardware products in the Far East and
was the Company's sales director. Prior to joining the Company, Mr. Steele
served in executive capacities at a number of companies in the toy and
electronics fields, including as Managing Director in charge of worldwide
sales of Concept 2000, a manufacturer of consumer electronics, from 1971 to
1978; as President of Wicely Corp., a distributor of electronic toys and
consumer electronics from 1978 to 1983; and as President of Justin Products
Corp., an electronic toy manufacturer from 1983 to 1988.
John Klecha has been the Chief Financial Officer, Secretary, Treasurer
and a Director of the Company since October 10, 1997. Mr. Klecha is in charge
of all financial and administrative operations of the Company, including the
Company's daily operations, shipping and inventory. Mr. Klecha manages the
Company's staff and is in control of the Company's billing and
<PAGE>
order entry and accounting. Prior to joining the Company, Mr. Klecha managed
all financial and administrative functions for a toy design, manufacturing,
and a distribution company encompassing 26 employees and revenues of $20
million. Mr. Klecha is a former Certified Public Accountant with more than 25
years of financial and management experience.
Walter H. Haskamp was appointed to the Board of Directors effective July
15, 1998. Since 1995, Mr. Haskamp has been a managing director of
Knorr-Bremse AG based in Hong Kong, which is an international group producing
brake systems for railway rolling stock and commercial vehicles. From 1986 to
1994, Mr. Haskamp served as managing director for DEG-German Investment and
Development Company ("DEG"") based in Thailand. Additionally, Mr. Haskamp
represented DEG on the Board of Directors of several joint venture companies
as well as serving as a consultant to the Board of Investment and the Ministry
of Industry of Thailand as assigned by DEG/BMZ, the German ministry for
economic cooperation. Prior to 1986, Mr. Haskamp had served for more than 30
years as a managing director/general manager of various manufacturing
companies in the Far East.
Paul Wu has been a director of the Company since September 1991 and was
the Chairman of the Board of Directors from September 1991 to February 1995.
Mr. Wu is a private investor and has been engaged in the electronics business
in the Far East and the United States. Since 1979, Mr. Wu has been the
chairman of the Board and a principal stockholder of FLX(HK) Ltd., a Hong Kong
corporation ("FLX"), which manufactures consumer electronics. Mr. Wu has also
been the Chairman and a principal stockholder of The SMC Singing Machine Co.,
Ltd., a Hong Kong corporation ("LTD"), since 1991, which is a trading company
for consumer electronics. Mr. Wu is also a director of Gemco Pacific, Inc., a
principal stockholder of the Company.
The Company's Board of Directors has the following committees:
(a) The Audit Committee is comprised of Messr. Walter Haskamp. This
committee was established to oversee the auditing procedures of the Company,
to receive and accept the reports of the Company's independent certified
public accountants, to oversee the Company's internal systems of accounting
and management controls and to make recommendations to the full Board of
Directors as to the selection and appointment of auditors for the Company.
(b) The Compensation Committee is comprised of Messrs. Walter
Haskamp, Edward Steele and John Klecha. This committee reviews and recommends
to the Board of Directors the appropriate compensation of directors and
executive officers of the Company.
The Board of Directors held 2 meetings during fiscal 1998.
EXECUTIVE COMPENSATION
Directors Compensation
The Company currently reimburses each director for expenses incurred in
connection with this attendance at each meeting of the Board of Directors or a
committee on which he serves. In addition,
<PAGE>
non-employee directors are entitled to be paid a fee of $750 for each board or
committee meeting attended and are entitled to receive 2,500 common stock
options per year.
Executive Compensation
The following table sets forth certain summary information with respect
to the compensation paid to the Company's executive officers whose total
annual salary and bonus exceed $100,000 for the fiscal year ended March 31,
for services rendered in all capacities to the Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payments
Restricted Securities
Name of Individual Other Annual Stock Underlying/ LTIP All Other
and Principal Position Year Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Edward Steele 1998 $166,500 $3,180 $7,200 -0- -0- -0- -0-
President
John Klecha 1998 $ 43,654 $1,442 $2,100 -0- -0- -0- -0-
Chief Financial Officer
</TABLE>
Employment Agreements
The Company executed an employment agreement with Mr. Steele which commenced as
of March 1, 1998, for a period of three years. Pursuant to Mr. Steele's
employment agreement, he is entitled to receive base compensation of $180,000
per year, which amount automatically increases during the second and third
fiscal years by the greater of 5% or the annual increase in the Consumer Price
Index. The agreement also provides for bonuses based on a percentage of a
bonus pool tied to the annual pre-tax net income (as defined in the agreement)
of the Company. No such bonuses were paid for the 1998 or 1997 fiscal years.
Mr. Steele would receive 50% of the bonus pool. In the event of a termination
of his employment following a change-in-control, Mr. Steele would be entitled
to a lump sum payment of 300% of the amount of his total compensation in the
twelve months preceding such termination. During the term of his employment
agreement and for a period of one year after his termination for cause or his
voluntary termination of his employment agreement, Mr. Steele could not
directly or indirectly compete with the Company in the karaoke industry in the
United States.
The Company executed an employment agreement with Mr. Klecha which commenced
as of March 1, 1998, for period of two years with an automatic term extension
for one additional year unless terminated by the Company or the employee.
Pursuant to Mr. Klecha's employment agreement, he is entitled to receive base
compensation of $92,000 per year, which amount automatically increases during
the second and third fiscal years by the greater of 5% or the annual increase
in the Consumer Price Index. The agreement also provides for bonuses based on
a percentage of a bonus pool tied to
<PAGE>
the annual pre-tax net income (as defined in the agreement) of the Company.
No such bonuses were paid for the 1998 or 1997 fiscal years. Mr. Klecha would
receive 25% of the bonus pool. In the event of a termination of his employment
following a change-in-compensation in the twelve months preceding such
termination, Mr. Klecha 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
one year after his termination for cause or his voluntary termination of his
employment agreement, Mr. Klecha could not directly or indirectly compete with
the Company in the karaoke industry in the United States.
OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 1998
The following table sets forth information concerning options granted
during the year ended March 31, 1998, pursuant to the Company's stock option
plans. No stock appreciation rights ("SARs") were granted.
<TABLE>
<CAPTION>
Percent of
Number of Total Options
Shares Granted to
Underlying Employees in Exercise Price
Name of Individual Options Granted Fiscal Year Per Share Expiration Date
<S> <C> <C> <C> <C>
Edward Steele 350,000 70.1% $ .43 12/9/05
John Klecha 100,000 20.0% $ .43 12/9/05
</TABLE>
The following table sets forth information as to options held by the
executive officers named in the Summary Compensation Table
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at at Fiscal
Fiscal Year End Year End
Shares - -
Acquired Value Exercisable/ Exercisable/
Name of Individual Upon Exercise Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Edward Steele N/A N/A N/A N/A
John Klecha N/A N/A N/A N/A
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has an agreement with FLX (A china manufacturer of consumer
electronics products) to produce electronic recording equipment based on the
Company's specifications. Paul Wu, a director of the Company, is Chairman of
the Board and a principal stockholder of FLX. During the fiscal years ended
March 31, 1997, and 1998, the Company purchased approximately $1.9 million and
$1.2 million respectively, in equipment from FLX.
<PAGE>
The Company believes that all of the foregoing transactions with FLX and LTD
have been on terms no less favorable to the Company that could have been
obtained from unaffiliated third parties in arms-length transactions under
similar circumstances.
The Company entered into an agreement with EPK Financial Corporation ("EPK")
whereby EPK will open letters of credit with the Company's factories to import
inventory for distribution to the Company's customers. This allows the
Company to purchase domestic hardware inventory for distribution to customers
in less than container load quantities and provides the flexibility to
customers of not opening an L/C in favor of the Company. The selling price to
these customers is higher to cover the Company's costs of financing costs to
EPK, ocean freight, duty, inland freight, and handling.
The Company pays EPK a flat fee per transaction, which is negotiated for each
shipment. There has been no maximum of total shipments established under this
agreement. Berkshire Financial, the Company's factor, has entered into this
agreement as a third party agreeing to purchase all accounts receivable
invoiced under these transactions. The transactions financed by EPK are
supported by personal guarantees of Edward Steele, the Company's Chief
Executive Officer, and John Klecha, the Company's Chief Financial Officer.
The agreement is in effect until July 1, 1999, unless terminated by either
party upon 30 days' written notice.
Edward Steele, the Company's Chief Executive Officer, has a promissory note
outstanding to the Company of $25,489 as of March 31, 1998. The original note
for $30,650 granted on March 31, 1995 has been extended until March 31, 1999
with a rate of 9% per annum on the unpaid balance.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS.
PROXIES RECEIVED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR THE PROPOSAL
UNLESS SHAREHOLDERS SPECIFY A CONTRARY CHOICE IN THEIR PROXY.
<PAGE>
PROPOSAL 2
TO RATIFY THE ISSUANCE OF STOCK OPTIONS PURSUANT
TO THE SINGING MACHINE COMPANY, INC.'S
EMPLOYEE STOCK OPTION PLAN
On December 9, 1998, the Board of Directors of the Company adopted the
Amendment to The Singing Machine Company, Inc.'s Employee Stock Option (the
"Plan") subject to shareholder approval. Under the Plan, the Board of
Directors in its discretion may grant stock options to purchase common stock
of the Company to officer and employees, including directors who are employees
of the Company. Prior to the Company's bankruptcy reorganization, the Plan
reserved 400,000 shares of Common Stock for the grant of options. After the
Company's reorganization, taking into consideration the post-bankruptcy
reverse split, there remains 28,000 outstanding options. The Resolution
states:
"Resolved, subject to the approval of shareholders of the Company, the
Board of Directors hereby approves the Amendment to The Singing Machine
Company, Inc. Employee Stock Option Plan to reserve an aggregate of 600,000
shares of Common Stock in conjunction with the issuance of options."
The purpose of the Plan is to (i) encourage stock ownership by directors,
key employees, consultants and advisors; (ii) to create an environment in the
Company that spawns a greater personal interest in the success of the
Company's business; and (iii) to provide incentives to the Company's
directors, personnel, consultants and advisors to continue to advance and
contribute to the Company.
In conjunction with this offering, 350,000 incentive option shares are
granted to Edward Steele and 149,000 incentive option shares to other key
employees within the Company. Any incentive option shares granted under the
Plan must provide for an exercise price of not less than 100% of the fair
market value of the underlying shares on the date of such grant, provided,
however, that the exercise price of any incentive option granted to an
eligible employee owning more than 10% of the outstanding Common Stock of the
Company must not be less than 110% of such fair market value as determined on
the date of the grant as covered under Section 422(a) of the Internal Revenue
Code of 1986.
THE BOARD OF DIRECTORS RECOMMEND A VOTE "FOR" ADOPTION OF THE AMENDMENT TO THE
SINGING MACHINE COMPANY, INC. EMPLOYEE STOCK OPTION PLAN. PROXIES RECEIVED BY
THE BOARD OF DIRECTORS WILL BE VOTED FOR THE PROPOSAL UNLESS SHAREHOLDERS
SPECIFY A CONTRARY CHOICE IN THEIR PROXY.
<PAGE>
PROPOSAL 3
PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION
OF THE SINGING MACHINE COMPANY, INC.
On April 16, 1998, the Board of Directors adopted a resolution, subject
to shareholder approval, authorizing an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of $.01 par value
Common Stock from 10,000,000 to 75,000,000. The resolution, in its entirety,
states:
"RESOLVED, subject to the approval of the shareholders of the
Corporation, the Board of Directors hereby approves the amendment to the
Articles of Incorporation of the Corporation to increase the authorized number
of share of common stock the Corporation is authorized to issue from
10,000,000 to 75,000,000."
Giving effect to the 1-for-10 reverse split of the Company's Common Stock
on March 26, 1998, as of December 31, 1998, there were issued and outstanding
2,356,935 shares of the Company's $.01 par value Common Stock. If the
increase in authorized shares is approved, there will be approximately
72,643,065 shares of Common Stock authorized but unissued shares available for
future utilization. The Company currently plans to reserve for issuance the
following shares if the increase in authorized shares is approved: The Board
of Directors believes that the recommended increase in the number of
authorized shares will give it the flexibility to timely meet the equity
capital requirements of the Company's business in the future. Once authorized
in the Articles of Incorporation, shares of Common Stock may be issued by the
Board of Directors, in most cases, without further authorization from the
shareholders.
The newly authorized shares of Common Stock will have voting and other
rights identical to those of the currently authorized shares of Common Stock.
Holders of the Company's Common Stock have no preemptive rights with respect
to the issuance of additional shares of Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE PROPOSED
AMENDMENT TO THE ARTICLES OF INCORPORATION. PROXIES RECEIVED BY THE BOARD OF
DIRECTORS WILL BE VOTED FOR THE PROPOSAL UNLESS SHAREHOLDERS SPECIFY A
CONTRARY CHOICE IN THEIR PROXY.
<PAGE>
PROPOSAL 4
PROPOSAL TO RATIFY THE APPOINTMENT OF
SAM F. MAY, JR. AND COMPANY, INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS, AS THE COMPANY'S AUDITORS
The Board of Directors of the Company has selected Sam F. May, Jr. and
Company, independent certified public accountants, as independent auditors for
the Company for the fiscal year ended March 31, 1999 and determined that it
would be desirable to request that the Company's shareholders ratify such
selection. One or more representatives of Sam F. May, Jr. and Company are
expected to be present at the Annual Meeting, will have the opportunity to
make a statement if they desire to do so and are expected to be available to
respond to appropriate questions from shareholders.
Although the Board of Directors of the Company is submitting the
appointment of Sam F. May, Jr. and Company for shareholder ratification it
reserves the right to change the selection of Sam F. May, Jr. and Company as
auditors, at any time during the fiscal year, if it deems such change to be in
the best interest of the Company, even after shareholder ratification.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
RATIFICATION OF SAM F. MAY, JR. AND COMPANY AS INDEPENDENT AUDITORS FOR THE
COMPANY FOR THE FISCAL YEAR ENDING MARCH 31, 1999. PROXIES RECEIVED BY THE
BOARD OF DIRECTORS WILL BE VOTED FOR THE PROPOSAL UNLESS SHAREHOLDERS SPECIFY
A CONTRARY CHOICE IN THEIR PROXY.
<PAGE>
OTHER MATTERS
Management is not aware of any other matters to be presented for action
at the Meeting. However, if any other matter is properly presented, it is the
intention of the persons named in the enclosed form of proxy to vote in
accordance with their best judgment on such matter.
COST OF SOLICITATION
The Company will bear the costs of the solicitation of proxies from its
shareholders. In addition to the use of the mail, proxies may be solicited by
directors, officers and regular employees of the Company in person or by
telephone or other means of communication. The directors, officers and
employees of the Company will not be compensated additionally for the
solicitation by may be reimbursed for out-of-pocket expenses in connection
with the solicitation. Arrangements are also being made with brokerage houses
and any other custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of the Company, and the Company
will reimburse the brokers, custodians, nominees, and fiduciaries for their
reasonable out-of-pocket expenses.
SHAREHOLDER PROPOSALS
A shareholder intending to present a proposal to be included in the
Company's proxy statement for the Company's 1999 Annual Meeting of
Shareholders must deliver such proposal in writing to the Company's executive
offices no later than March 8, 1999.
In addition, the proxy solicited by the Board of Directors for the 1999
Annual Meeting of Shareholders will confer discretionary authority to vote on
any shareholder proposal presented at that meeting, unless the Company is
provided with notice of such proposal no later than March 8, 1999.
BY ORDER OF THE BOARD OF DIRECTORS
__________________________________
Edward Steele, President
January 14, 1999
<PAGE>
THE SINGING MACHINE COMPANY, INC.
PROXY
The undersigned hereby constitutes and appoints John Klecha as Proxy,
with power of substitution, to represent the undersigned at the Annual Meeting
of Shareholders of The Singing Machine Company, Inc. (the "Company"), to be
held on March 18, 1999, and at any adjournments thereof, and to vote in
accordance with the instructions below all shares of Common Stock of the
Company which the undersigned is entitled to vote.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS CONSENT
WILL BE VOTED "FOR" PROPOSAL 1, PROPOSAL 2, PROPOSAL 3 AND PROPOSAL 4.
1. The election of Edward Steele, John F. Klecha, Walter Haskamp, and Paul
Wu to the Board of Directors of the Company
_____ FOR all nominees listed above as a group (except as marked to the
contrary below)
_____ WITHHOLD AUTHORITY to vote for all nominees listed above as a group
(INSTRUCTION: to withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- ------------------------------------------------------------------------------
2. The ratification of the issuance of stock options pursuant to The Singing
Machine Company, Inc. Employee Stock Option Plan
_____FOR______ AGAINST______ ABSTAIN
3. The amendment of the Company's Certificate of Incorporation to increase
the number of authorized shares of Common Stock from 10,000,000 to
75,000,000
_____FOR______ AGAINST______ ABSTAIN
4. The approval of Sam F. May, Jr. and Company, CPA as the Company's
independent certified public accountants for the year ended March 31,
1999
_____FOR______ AGAINST______ ABSTAIN
Dated: ___________, 1999 ____________________________
Signature
____________________________
(Printed name)
____________________________
Signature if held jointly
____________________________
(Printed name)
PLEASE SIGN AND DATE AND RETURN IN THE ENCLOSED ENVELOPE. NO POSTAGE
NECESSARY.
