SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
SCHEDULE 14A INFORMATION
------------------
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[R]
August 4, 2000
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 September 6, 2000 at 10:00 a.m. in the Marriot Hotel
located at Boca 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 ratify The Singing Machine Company, Inc.
Employee Stock Option Plan, to approve an amendment to the
Company's Articles of Incorporation to decrease the number of
authorized shares, the approval of the Company's independent
certified public accountants, and transact 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:/s/Edward Steele
------------------------------
Edward Steele
President and Chief Executive
Officer
THE SINGING MACHINE COMPANY, INC.
6601 Lyons Road - Building A-7 - Coconut Creek, Florida 33073
(954) 596-1000 - Fax (954) 596-2000
___________________________________________________________________
<PAGE> 1
PROXY STATEMENT
The Singing Machine Company, Inc.
6601 Lyons Road Building A-7
Coconut Creek, Florida 33073
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
September 6, 2000
NOTICE IS HEREBY given that the 2000 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 Boca Center, 5150 Town Center
Circle, Boca Raton, Florida, on September 6, 2000 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 and approve the amendment to the Company's
Employee Stock Option Plan described in the accompanying
Proxy Statement.
(3) To consider and act upon a proposal to amend the
Company's Articles of Incorporation to decrease the
number of authorized shares of Common Stock from
75,000,000 to 20,000,000;
(4) To approve Weinberg & Company, P.A. as the Company's
independent certified public accountants for the fiscal
year ended March 31, 2001; 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 August 4, 2000, 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 4,063,296
shares of the Company's Common Stock, par value $0.01 per share
(the "Common Stock"), issued and outstanding and entitled to vote
at the Annual Meeting. All holders of our Common Stock are
entitled to one vote per Common Share.
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 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
<PAGE> 2
Company's Form 10-KSB for the fiscal year ended March 31, 2000, is
available by contacting the Company, in writing, to: John Klecha,
The Singing Machine Company, Inc., 3101 Lyons Road, Building A-7,
Coconut Creek, FL 33073.
By Order of the Board of Directors
By:/s/Edward Steele
-----------------------------
Edward Steele, Chairman
President and Chief Executive
Officer
Coconut Creek, Florida
July 24, 2000
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> 2
PROXY STATEMENT
2000 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 2000 Annual Meeting of Shareholders (the "Annual
Meeting") to be held at the Marriot Hotel which is located at Boca
Center, 5150 Town Center Circle, Boca Raton, on September 6, 2000
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 August 7, 2000.
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 amendment to The Singing
Machine Company, Inc. Employee Stock Option Plan; (c) the amendment
to the Company's Articles of Incorporation to decrease the number
of authorized shares of Common Stock from 75,000,000 to 20,000,000;
(d) the approval of Weinberg & Company, P.A. as the Company's
independent certified public accountants for the fiscal year ended
March 31, 2001; 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,
Josef A. Bauer and Howard W. Moore to the Board of Directors of the
Company; FOR the amendment to the Singing Machine Company, Inc.
Employee stock option plan, to reserve an aggregate of 1,300,000
shares of common stock for the issuance of options under the plan,
FOR the ratification of the amendment to The Company's Certificate
of Incorporation to decrease the number of authorized shares of
Common Stock from 75,000,000 to 20,000,000; and FOR the approval of
Weinberg & Company, P.A., as the Company's independent certified
public accountants for the year ended March 31, 2001.
<PAGE> 3
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 amendment to The Singing Machine Company, Inc.
Employee Stock Option Plan will require the affirmative vote of a
majority of the shares of Common Stock outstanding as of August 4,
2000. 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.
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 August 4,
2000, 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>
John Klecha
6601 Lyons Road, Building A-7
Coconut Creek, Florida 33073 483,274(4) 9.8%
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Shares
Name and Address Beneficially Percent of
Of Beneficial Owner Owned (1) (8) Class
------------------- ------------- ----------
<S> <C> <C>
Edward Steele (7)
6601 Lyons Road, Building A-7
Coconut Creek, Florida 33073 440,424(3) 8.9%
Allen and Deana Schor
840 East Walnut
Carson, California 90746 336,343 6.8%
Josef A. Bauer
130 Sunrise Avenue, #312
Palm Beach, FL 33480 116,886(5) 2.4%
The Harry Fox Agency
711 Third Avenue, 8th Floor
New York, NY 10017 410,675 8.3%
FLX (HK) Ltd.
Unit 19 5/F Vanta Ind. Centre
21-33 Tai Lin Pai Road
Kwaichung N.T. Kowloon
Hong Kong 237,932(2) 4.8%
Colony Electronics
500 Hennessy Road
Causeway, Hong Kong 129,300(2) 2.6%
Gemco Pacific, Inc.
500 Hennessy Road
Causeway, Hong Kong 25,667(2) 0.5%
All Directors and Executive
Officers as a Group (4 persons) 1,376,927(6) 27.9%
</TABLE>
(1) As used herein, the term beneficial ownership with
respect to a security is defined by Rule 13-d 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. Paul Wu is a former director of the Company. Mr. Wu is a
director of Colony Electronics. Mr. Wu disclaims any beneficial
ownership of the shares of Colony Electronics. Mr. Wu is a
<PAGE> 5
director of FLX (HK) Ltd. And disclaims any beneficial ownership
of the shares of FLX (HK) Ltd. Mr. Wu is a director of Gemco
Pacific, Inc. ("Gemco"). Mr. Wu disclaims beneficial ownership
of the shares owned by Gemco.
(3) Includes immediately exercisable Options to purchase
205,000 shares of Common Stock and immediately exercisable
Warrants to purchase 8,000 shares of Common Stock.
(4) Includes immediately exercisable Options to purchase
39,000 shares of Common Stock and immediately exercisable
Warrants to purchase 24,000 shares of Common Stock.
(5) Includes immediately exercisable Warrants to purchase
8,000 shares of Common Stock.
(6) Includes immediately exercisable Options to purchase
244,000 shares of Common Stock and immediately exercisable
Warrants to purchase 40,000 shares of Common Stock.
(7) Mr. Steele disclaims beneficial ownership of 100 shares
owned by his wife.
__________________________________________________
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities 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> 6
PROPOSAL 1
ELECTION OF DIRECTORS
AND INFORMATION REGARGING DIRECTORS
The Board of Directors is presently comprised of four (4)
individuals, Edward Steele, John F. Klecha, Josef A. Bauer and
Allen Schor. 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 70 Chief Executive Officer,
President and Director
John F. Klecha 50 Chief Operating Officer,
Chief Financial Officer,
Secretary, Treasurer
and Director
Josef A. Bauer 62 Director
Howard W. Moore 69 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.
Since June 18, 1999, Mr. Klecha has served as Chief Operating
<PAGE> 7
Officer. Mr. Klecha is in charge of all financial, administrative,
and operational functions of the Company. Prior to joining the
Company, Mr. Klecha served in executive and senior management
capacities at a number of companies in the toy and other consumer
products fields, including as the senior financial and
administrative executive of a privately held toy design,
manufacturing and distribution company since 1987; Vice President,
Director and Chief Financial Officer of Sussex Nautilus from 1984
to 1987; and Vice President of Finance and Administration for
Lazzaroni Sarrono, Ltd. from 1982 to 1984.
Joseph A. Bauer was appointed to the Board of Directors effective
October 15, 1999. Since 1992, Mr. Bauer has been a managing
director and principal stockholder of Dero Research Ltd. in Hong
Kong, which serves as a manufacturer's representative for the sale
of telephone and electronic products. From 1970 to 1993, Mr. Bauer
served as a managing director and was a principal stockholder of
Dero Research Corporation in Tokyo, Japan, which was engaged in the
design, engineering and manufacture of automobile audio equipment.
He served as a director from 1991 to 1994, of AmeriData
Technologies, Inc., a publicly traded computer products and service
company. In December 1994, Mr. Bauer was elected to the Board of
Directors of GoVideo, Inc., a publicly traded video electronics
manufacturer and distributor. Mr. Bauer has also served as
President of Banisa Corporation, a privately owned investment
company, since 1975. Mr. Bauer is also President of Magna (a
position he has held since 1989) and was formerly a director of the
Company from February 1990 until September 1991, and February 1995
until May 1998.
Howard W. Moore is a private investor and consultant to the toy
industry with considerable experience in toy products, marketing,
licensing, merchandising and packaging. He is currently consulting
with three start up companies, and various product development
firms and toy inventors. Mr,. Moore recently resigned from the
Board of Directors of Toys R Us after 15 years of service to the
Board and is currently serving as Vice Chairman of the Board of
C.ME.com and TWODOG.net. He has served in various positions with
Toys R Us from 1980 to 1990 including Executive Vice President of
Purchasing and Executive Vice President, General Merchandise
Manager. Prior to his tenure at Toys R Us, Mr. Moore was the
Executive Vice President of Lionel Leisure Corporation during 1978
- 1979 and founded two retail toy companies, Toy Barn Stores, which
was sold privately in 1966 and Toy Town, USA, Inc. which was sold
to Lionel Leisure Corporation in 1978.
The Company's directors serve for a term of one year, or until
their successors shall have been elected and qualified. The
Company has in place an employment agreement with its Chief
Executive Officer, Mr. Steele, and its Chief Operating Officer, Mr.
Klecha.
DIRECTORS' COMPENSATION
The Company currently reimburses each director for expenses
incurred in connection with attendance at each meeting of the Board
of Directors or a committee on which the directors serves. In
addition, non-employee directors are entitled to be paid a fee of
$1,000 for each board or committee meeting attended and are
entitled to receive 10,000 common stock options per year.
<PAGE> 8
BOARD COMMITTEES
On October 15, 1999, the Board of Directors appointed Audit and
Executive Compensation/Stock Option Committees. The Audit
Committee consists of Messrs. Steele, (and outside directors) Bauer
and Schor, and the Executive Compensation/Stock Option Committee
consists of Messrs. Klecha, (and outside directors) Bauer and
Schor. The Audit Committee recommends the engagement of
independent auditors to the board, initiates and oversees the plans
and results of audits with the Company's independent auditors,
reviews the Company's internal accounting controls, and approves
services to be performed by the Company's independent auditors.
The Executive Compensation/Stock Option Committee considers and
authorizes remuneration arrangements for senior management and
grants options under, and administers, the Company's 1994 Amended
and Restated Management Stock Option Plan. The entire Board of
Directors operates as a nominating committee.
EXECUTIVE COMPENSATION
The following table sets forth summary compensation information
with respect to compensation paid by the Company to the Chief
Executive Officer of the Company ("CEO") and the Company's four
most highly compensated executive officers other than the CEO, who
were serving as executive officers during the Company's fiscal year
ending March 31, 2000.
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
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 2000 $189,363 $52,369 $7,575 $200,000 -0- -0- -0-
President
John Klecha 2000 $114,394 $26,184 $4,292 $150,000 -0- -0- -0-
Chief Financial Officer
Chief Operating Officer
</TABLE>
Employment Agreements
The Company extended the existing employment agreement with Mr.
Steele which commenced as of March 1, 2000, for a period of three
years. Pursuant to Mr. Steele's employment agreement, he is
entitled to receive base compensation of $350,000 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. 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 is barred from directly or
indirectly competing with the Company in the karaoke industry in
the United States.
The Company executed an employment agreement with Mr. Klecha which
commenced as of June 1, 2000, for a period of three years with an
automatic term extension for one additional year unless terminated
<PAGE> 9
by the Company or the employee. Pursuant to Mr. Klecha's
employment agreement, he is entitled to receive base compensation
of $275,000 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. Mr. Klecha would receive 40% of the bonus pool. In the
event of a termination of his employment following a change-in-
control in the twelve months preceding such termination, Mr. Klecha
would be entitled to a lump sum payment of 200% 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 is
barred from directly or indirectly competing with the Company in
the karaoke industry in the United States.
OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 2000
The following table sets forth information concerning options
granted during the year ended March 31, 2000, 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 30,000 28.8% $1.66 6/25/05
John Klecha 39,000 37.5% $1.66 6/25/05
</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 -0- -0- 205,000/175,000 666,250/568,750
John Klecha 50,000 $162,500 39,000/50,000 126,750/162,500
</TABLE>
<PAGE> 10
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
significant shareholder of the Company (see: Security Ownership
of Certain Beneficial Owners and Management), and a former
director of the Company, is Chairman of the Board and a principal
stockholder of FLX. During the fiscal years ended March 31, 1999,
and 2000, the Company purchased approximately $1.0 million and
$10.3 million respectively, in equipment from FLX. The Company
believes that all of the foregoing transactions with FLX have been
on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties in arms-length
transactions under similar circumstances.
Company Loans to Officers and Directors
On March 31, 1998, the Company loaned Edward Steele, a Director
and Chief Executive Officer, the principal amount of $13,880,
which Note was extended until March 31, 2001, with an interest
rate of 9% per annum on the unpaid balance. In June, 1999, Mr.
Steele paid the Note in full.
On July 1, 1999, the Company loaned Edward Steele, Chief Executive
Officer, President and Director $55,000 for the purchase of two
(2) units of the Company's Private Placement. The Note including
interest of 9% matures on June 28, 2000, which Note was extended
until June 28, 2001. Interest has been paid on the Note through
June 28, 2000. The Note is secured by the securities comprising
the Private Placement Units.
On July 1, 1999, the Company loaned John Klecha, our Chief
Operating Officer, Chief Financial Officer and Director $55,000
for the purchase of two (2) units of our Private Placement. The
Note including interest of 9% matures on June 28, 2000, which Note
was extended until June 28, 2001. Interest has been paid on the
Note through June 28, 2000. The Note is secured by the securities
comprising the Private Placement Units.
Stock Grants for Credit Facility and Letter of Credit Guarantees
In June, 1999, the Company arranged a credit facility with Main
Factors, Inc., whereby Main Factors, Inc. purchases certain of the
Company's accounts receivable. Under the agreement, the Company
receives 75% - 85% of the face value of those receivables without
recourse. To secure the credit facility, John Klecha, the
Company's Chief Operating Officer and Chief Financial Officer,
provided his personal payment guaranty. The average outstanding
balance of this credit facility is $1,300,000.
In July, 1999, the Company entered into an agreement with EPK
Financial Corporation ("EPK") whereby EPK provided letters of
credit with the Company's factories to import inventory for
distribution to our customers. The EPK agreement allows the
Company to purchase domestic hardware inventory in less than
container load quantities and provide the flexibility to customers
of not having to open a letter of credit in favor of the Company.
To secure the letter of credit, Edward Steele, our Chief Executive
Officer and President, and John Klecha, our Chief Operating
Officer and Chief Financial Officer, provide their personal
guarantees. The average outstanding balance of this letter of
credit is $300,000.
<PAGE> 11
In consideration for providing their personal guarantees, the
Company issued to Mr. Steele 200,000 shares of our Common Stock
and issued to Mr. Klecha 150,000 shares of our Common Stock.
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> 12
PROPOSAL 2
TO RATIFY THE ISSUANCE OF STOCK OPTIONS PURSUANT
TO THE SINGING MACHINE COMPANY, INC.'S
EMPLOYEE STOCK OPTION PLAN
On June 28, 2000, 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 employees, and directors. 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 1,300,000
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.
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> 13
PROPOSAL 3
PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION
OF THE SINGING MACHINE COMPANY, INC.
On June 28, 2000, the Board of Directors adopted a
resolution, subject to shareholder approval, authorizing an
amendment to the Company's Articles of Incorporation to decrease
number of authorized shares of $.01 par value Common Stock from
75,000,000 to 20,000,000. 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 decrease the authorized number of
share of common stock the Corporation is authorized to
issue from 75,000,000 to 20,000,000."
The decrease in authorized shares will save the Company
approximately $16,000.00 a year in Delaware franchise taxes and
will not adversely impact shareholders.
At August 4, 2000, there were 4,063,296 shares of the
Company's $.01 par value Common Stock issued and outstanding. If
the decrease in authorized shares is approved, there will be
approximately 15,936,704 shares of Common Stock authorized but
unissued shares available for future utilization.
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> 14
PROPOSAL 4
PROPOSAL TO RATIFY THE APPOINTMENT OF
WENBERG & COMPANY, P.A., INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS, AS THE COMPANY'S AUDITORS
The Board of Directors of the Company has selected Weinberg
& Company, P.A. independent certified public accountants, as
independent auditors for the Company for the fiscal year ended
March 31, 2001 and determined that it would be desirable to
request that the Company's shareholders ratify such selection.
One or more representatives of Weinberg & Company, P.A. are
expected to be present at the Annual Meeting 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 Weinberg & Company, P.A. for shareholder
ratification it reserves the right to change the selection of
Weinberg & Company, P.A. 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 WEINBERG AND COMPANY, P.A. AS INDEPENDENT AUDITORS
FOR THE COMPANY FOR THE FISCAL YEAR ENDING MARCH 31, 2001.
PROXIES RECEIVED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR THE
PROPOSAL UNLESS SHAREHOLDERS SPECIFY A CONTRARY CHOICE IN THEIR
PROXY.
<PAGE> 15
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 2000 Annual
Meeting of Shareholders must deliver such proposal in writing to
the Company's executive offices no later than August 28, 2000.
In addition, the proxy solicited by the Board of Directors
for the 2000 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 August 28, 2000.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Edward Steele
----------------------------------
Edward Steele, Chairman of the
Board of Directors, President and
Chief Executive Officer
July 24, 2000
